So, you decided to start a fintech company in Europe and only have a vague idea what steps to take to reach success? I, too, was once in your shoes, but I am now the CEO of an international crypto-fintech company. We are still to conquer the world, mind you, but I managed to collect a whole lot of experience that I would like to share in this article.
First, there are some basic things that we need to get out of the way. Really, building a successful fintech company is no different than building a successful company, period. Industry knowledge is crucial here. When it comes to fintech, you will benefit from knowing the market like the back of your hand and being savvy about IT.
Thankfully, fintech and the financial system as a whole in its current state is a sweet piece of pie from the standpoint of un-optimized processes that are begging to be improved and can be easily digitized. And with blockchain, a whole new world of possibilities has opened up!
By any means, raising venture capital is not the first thing you should do when building a startup. Research and custom development should always come first, but there will be a moment when you will need money to start growing faster.
In the European startup scene you will have four main options to consider:
Pre-accelerators and accelerators are a great place to find expertise, mentorship and advice. They are especially useful when you think you’ve reached a block and don’t know how to bootstrap your growth. Sometimes all you need is a different perspective from a more experienced entrepreneur. Most accelerators will provide a tracking program, consulting and sometimes an investment round that can range from €10,000 to more than a €100,000.
You can use an accelerator to grow the business to a point when you meet a seed or A investment round requirements and start looking for venture funds to fuel your growth. The European startup scene is one of the most active and there are many venture funds to choose from. A good tips is to consider a VC that already has projects from the same field in the portfolio. Yet, if your product is competing with companies that the fund has already backed — the doors of that VC are likely closed for you.
An alternative route is to seek financial backing from a private investor or a business angel. For some reason, this path feels like there is less resistance; after all, you are communicating with a human being interested in your project. But, there is a downside. A lot of business angels made their fortune in the 1980s and 1990s, and some can have an old-fashioned approach to business. Sometimes it’s hard to convince them why your revolutionary startup will be profitable, and when things temporarily start going against you or you miss a deadline they will try to take control of the company and dictate their vision.
Initial coin offerings (ICOs)
This type of funding is becoming more and more popular, especially in the blockchain scene. An ICO is when you issue tokens and sell them to investors directly in exchange for funds to be used to grow the business. Holding tokens does not give investors the same rights as shares, therefore they have no voice in executive decisions, which provides you with a certain amount of freedom.
Since ICOs are such a new phenomenon, they are not regulated in a lot of European countries and fall in a legal gray zone. Which means that you have to be careful to choose a country that encourages the development of blockchain projects. Countries that have friendly ICO regulations include Estonia, Switzerland, Cyprus, Malta and Liechtenstein. Countries that are uncertain about crypto or don’t have regulation include England, France, Belgium and Spain.
If you plan to raise money through an ICO, don’t register the company in a country where the situation is uncertain. Maybe it will enact a law that will force you to return all of the raised money. This has already happened in China. That said, the regulatory landscape in Europe is moving in a very positive direction.
There are a few ways in which hiring in Europe is different from the rest of the world. First of all is speed. Your new employee is likely to require a lot of time to complete the termination process at his or her current job (it can take up to nine months!). Another thing is that employment contracts are used very widely and not only with executives. There are a lot of regulations to consider when drafting one and it is a topic of its own that you need to become proficient in to hire in Europe successfully.
Taxes and accounting
From the perspective of taxes and accounting, fintech companies in the EU are treated like any other business with one large exception. State accelerators and incubators may offer concessional financing and tax holidays; for example, the U.K. has several programs to help start a business. But, to be eligible for those goodies your company’s accounting must be extremely transparent and thorough.
Many startups avoid this path because it’s easy to get buried in paperwork, but I would say if you can make it though you will have an ultra robust financial model. And you need it for successful development anyway. Many startups fail because they don’t have one.
Acquiring for a license and opening a bank account
Acquiring a license is a little bit different in each European country. If I were to summarize the process in one word it would be — paperwork. There is a ton of paperwork and the ideal scenario is hiring a law firm to help you with the application process. I understand that many will find that way too expensive, but if you have the ability, I would say go for it. This is the step that you don’t need to do yourself, and you won’t gain much, just lose a lot of time here.
Once your company is licensed, you will need to open a bank account. Many European banks view fintech companies as high-risk ventures especially if your business has anything to do with cryptocurrencies or blockchain. And let’s be honest, those are the hottest sectors in fintech right now.
Having a management board with a lot of executive experience definitely helps, but be prepared to supply a lot of information and answer a lot of pesky questions. Perhaps the best countries to open a bank account for a cryptocurrency company are Estonia or Switzerland.
One out of hundreds if not thousands of companies reaches success. You may be struggling, putting in everything you’ve got but you are still likely to fail. That’s fine. The truth is, most successful businessmen that we look up to didn’t make it with their first try. Just stop, analyze what you did wrong and what you could have done better, rest, regroup and try again. Don’t stop trying and you will eventually get it!
By Andrew Zimine, Exscudo CEO