Given a host of supporting factors, FinTech startups are well poised to shape the future of global finance going forward.
Given the recent surge of technological innovation in the financial services industry, the rise of FinTech is undeniable. Last year, global private financial technology companies raised approximately $3 billion, more than three times the $930 million that was invested in 2008.
The finance industry is a go on FinTech
Last year also saw a number of major players invest in financial technology startups. Santander announced in July the launch of its $100 million venture capital fund to invest in global FinTech startups, and HSBC allocated $200 million for investment in startup tech companies as well. Given the host of supporting factors, such as new technology, regulations, and the need for cost reduction, FinTech startups are well poised to shape the future of global finance going forward.
What makes a FinTech company successful?
Kevin MacDonald, co-CEO and co-founder of Black Mountain Systems, a software company that develops innovative, tailored solutions for data aggregation, process management, and business reporting for global investment firms, explained what sets a successful FinTech company apart from the rest.
“The best companies address a pressing user challenge, partner with stakeholders that are ready to solve the problem, attract investment based on the merit of their solution, and are driven by teams that cultivate a receptivity to any possibility.”
MacDonald has been part of the movement long before it was called FinTech. As an entrepreneur, the co-founder of Black Mountain Systems previously launched two successful ventures and has been developing new systems for the financial services industry for nearly two decades. With years of valuable experience under his belt, he was fortunate to learn what it takes to succeed as a FinTech startup.
“Successful FinTech ventures are undoubtedly driven by a desire to solve client problems with technology solutions and outperform peers.”
FinTech serving the B2B and institutional investor side of the industry
The breadth and variety within financial markets is enough to overwhelm even the most ambitious entrepreneur. Many entrepreneurs choose to target the main markets, where most players compete, but quite often they face the roadblock of having to wait on fundamental technology shifts, which can take years. MacDonald advises FinTech startups to instead focus on niche markets and avoid these pitfalls.
Prior to founding Black Mountain Systems in 2007, MacDonald was the CTO and co-founder of FCS, the developer of the Wall Street Office platform. Under his leadership, Wall Street Office evolved to become the industry standard for back office loan accounting. MacDonald oversaw the technology effort from the founding of FCS in 1996 through 2005, including the the JP Morgan acquisition in 2003.
As a FinTech industry expert, MacDonald gave four pieces of advice for peers and fellows in the industry:
1. Look for the niche that no one is focusing on
Find the pockets of the financial sector that are underserviced and build your startup to cater to those needs. These underserved niches are often discovered unintentionally by simply following the rabbit hole of problems back to the source.
2. Look for opportunities that have high barriers to entry
One important step in the process of finding an overlooked niche is to look for opportunities that have high barriers to entry. Financial markets that are harder to gain access to are the ones likely to have more opportunities for FinTech startups. The pockets of financial services that people typically have less insight into are full of potential for entrepreneurs. For example, outsiders do not always understand the intricacies of buy-side markets. Few entrepreneurs focus on these markets because of the perceived challenges they present. Accordingly, these markets hold greater opportunities for problem-solving.
3. Find enthusiastic, visionary client-partners
Partnership, particularly in the institutional FinTech realm, is elemental for the success of a startup. When developing technology for markets that have high barriers to entry, it is absolutely critical that entrepreneurs find client-partners who believe in their ability to solve problems. Partners facilitate the accumulation of knowledge so that entrepreneurs can quickly understand market nuances. Startups are empowered through partnership, and as a result, problem-solving is accomplished in a more sophisticated way.
4. Build the best system possible
While it is obvious that a strong product is crucial, it is necessary to highlight the importance of work-ethic and ambition. Successful FinTech ventures are undoubtedly driven by a desire to solve client problems with technology solutions and outperform peers. By doing it better and cheaper than the competition, entrepreneurs ensure their startup’s edge over other ventures. Recruitment of a strong team that is committed to excellence and hard work is paramount.
Black Mountain Systems is the culmination of industry experience and dedication
Co-CEO and co-founder of Black Mountain, Kevin MacDonald began his career as a college summer intern at Protective Asset Management, the predecessor to Highland Capital, a start-up CLO shop. There, Macdonald began understanding and addressing the challenges of the syndicated loan, buy-side investment class. At that time, people were predominantly focused on solutions for other investment classes in the broader financial markets. Few had their sight on on the high-dollar, low-volume transactions of the syndicated loan world.
By building a system that successfully addressed the firm’s needs, MacDonald and Highland saw the perfect opportunity to spin off a new business that would bring similar efficiency to other CLO managers. This idea led to the development of Wall Street Office, which over the years has reached near-market saturation for back-office accounting.
The establishment of Black Mountain Systems is the culmination of these previous accomplishments. Black Mountain Systems’ Everest platform is currently used by 56 influential firms, including eight of the top 10 global high-yield loan fund managers.
“At each point I launched a new business in my career, I have gained immeasurable knowledge from client-partners, particularly those who are the first in line to partner to build a new system,” said MacDonald. “When I partnered with the buy-side firm Highland Capital, it was clear that the founders were also highly entrepreneurial and had the foresight to see that developing and implementing a system in-house could be scaled to other similar businesses.”
MacDonald noted that his team’s technology products have become the industry standard because peers throughout the industry are personally familiar with the problems they have solved.
“And once they saw what we had done, the client adoption process was swift,” he added.
Black Mountain Systems has been ranked on the Inc5000 for four consecutive years since 2011.