
Ask HN: Why can't I raise funding? - _funding
I&#x27;m developing a Venmo-like solution in Europe. With disrupting regulation coming in 2018 (PSD2), fintech is quite a hot space in Europe at the moment. However, I can&#x27;t seem to be able to raise funding for my project. We&#x27;ve raised 250k so far to develop the product and harvest the first user data. Investors tell us that the market is too competitive and too capital intensive to get involved in. They tell us explicitly that they like the team. I don&#x27;t believe a capital intensive market is a reason not to invest.<p>We&#x27;re in a market with strong network effects, so naturally being a first mover is one of the biggest advantages right now.<p>Some key metrics:
28d Retention: 25-30%
Doubling userbase every quarter.
No marketing, have an inherent viral product.
Current userbase: 3.6k<p>What would be the reason people don&#x27;t want to invest? Is my retention too low, userbase too low or am I naive or ignorant about something obvious about consumer fintech?<p>Curious as to what the HN community thinks.
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brudgers
What gets measured becomes the goal. I think about payments and the numbers
I'm likely to care about are number of transactions and revenue per
transaction. I would not really focus on users because it is vague...could be
a harvested email or someone who downloaded an app etc.

Or rather I would not focus on number of except as it relates to transactions.
Having just ten users who do a million transactions a month suggests a strong
network effect and the potential for profits from volume on fractional fees. A
million users who do a million transactions a month might also be good, but 4k
users at $60 acquisition per user does not suggest it will be easy to get to
the hundreds of millions of users that would are probably required to make a
consumer facing Unicorn.

Fintech may be a hot space. By the time I hear about hot spaces I figure the
smart money that earns 40% a year is already there and big dumb money that is
happy with 6% a year is on its way. Not that I have money to invest either
way.

Good luck.

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_funding
In Feb we did 1k+ transactions, done by 615 users. 4 months before that we did
half. We're seeing a little bit more growth in usage in the last months than
we see in user growth, mainly because of the network effect.

A transaction costs a few cents per transaction, and the prices will drop a
lot in two years from now.

~~~
brudgers
For a back of envelope calculation, call that ~0.3 transactions per user per
month and round the few cents up to a dollar and the revenue is $0.30 per user
per month. That's $3.60 per year and the current acquisition cost is ~$60.00
per user without accounting for churn. Over twenty years that's $72.00 of
lifetime value and $12.00 over acquisition costs. I'm not saying those are the
numbers but they are a starting point for a _pro forma_.

A low rate of engagement and a high cost of acquisition and a low margin per
transaction are all considerations in terms of viability of the business. A
changing regulatory landscape is a huge risk that probably does not favor
small companies with constrained resources. The probability of lower prices in
two years is an insight into the market, but not one that encourages
investment.

As an exercise, it might be useful to think about what should be done if the
company does not obtain outside investment. How would bootstrapping work?

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coldtea
> _I don 't believe a capital intensive market is a reason not to invest._

It's what investors believe that matters though. And if they tell you that
"the market is too competitive and too capital intensive to get involved in",
then what more do you need?

The investors you've managed to attract are not for big risks.

~~~
_funding
Does this mean there aren't any investors that would be willing to do such a
thing? Do I simply need to look elsewhere for funding?

~~~
coldtea
Possibly, unless you have reason to believe that they just don't like your
implementation, and are lying it to you about their true concerns.

In general European investors are more conservative that SV ones.

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chatmasta
Which investors are you pitching to? If "capital intensive" is the main
complaint, perhaps you are trying to raise the wrong kind of funding. Is the
"capital intensive" due to the need to float money between payment cycles? If
so, perhaps you would fare better trying to raise a line of credit from a
bank. Or, specifically target fintech funds.

Also, where did you get the first 250k from? Are those investors not
interested in further investment? If so, that's a very negative signal and you
need to figure out how to fix it.

~~~
_funding
I've pitched to VC's. They tell it's too early stage for them, because we're
4-7 years away from profitability.

I've pitched to angels, they want to invest, but I'm reluctant to take their
money as I am not seeing how their money is going to help me get the next
round of funding, with the comments from VC's I'm getting right now. Also, the
angel network in my country is not big (5-10 people I can raise from).

First 250k we got from a big bank. We since then pivoted the company to a more
mainstream product and they just killed a proposition like this one of their
own (because the product sucked), and are afraid to invest more in the same
space.

~~~
chatmasta
Still wondering what's so capital intensive about the business. Is it the need
to float money? Could you restructure your business to avoid this? i.e. by
partnering with an existing merchant account provider and signing your
customers up as "sub merchants"? (isn't this what stripe does? or at least
used to do?)

Why not reach out to other big banks for investment? Perhaps you can frame the
pitch so that they feel like they're capitalizing on a missed investment
opportunity by their competitor (your original investor).

~~~
_funding
One big bank ripped our idea off after having pitched the idea at the same
time we did at Bank A (our investor). If we don't close something this month,
we'll sell to them (they're rather eager). Making it an acquihire, because
they don't know how to take the product to the next level. This outcome would
certainly feel like a big failure to me.

They are not extremely hard to beat, their product lacks a lot of strategic
implementations, making the barrier to exit extremely low. Our product also
tends to be better.

The reason it's capital intensive is because you'll need to pay for
transactions up until about 2020, and also need to acquire users very rapidly
before 2018. Only to find out between 2018-2020 how much you can monetize the
product. (big risk, fairly unkown reward).

There are ways to get the transaction costs down, but they will always be
there long before we become profitable.

~~~
chatmasta
Why aren't you passing transaction costs onto the customer? So all these
customers you have are paying you _zero_ dollars?? Is that really necessary?

~~~
_funding
Yep, consumers are never paying premiums for transaction costs in Europe.
Debit cards are the norm here. We don't pay extra when using our regular bank
app to transact nor ecommerce transactions. Consumers are not going to pay for
transactions :-)

~~~
chatmasta
Ah I see. I missed the part that you were more Venmo than stripe. I guess this
is the same strategy Venmo took (and they started charging fees as soon as
possible, especially given all the people using it for credit card churning).

Sounds like you have a solid business. Good luck getting more funding. I hope
it works out for you.

