Finance · Fintech

Big financial company siren song?

Chloe Hartford Cofounder/CMO at USalesy

August 27th, 2015

As the founder of a fin tech startup, I've got friends offering to connect me with Wall Street sized firms but I'm worried it might ultimately be a waste of time. I know there might be ways to partner with big financial companies but is that a good use of time given how unpredictable and long it takes for them to make decisions?

David Still Founder of Start-ups, Entrepreneur, Financier and Advisor

August 27th, 2015

I partnered with three of the top ten banks in the U.S. The partnership included seven year product service contracts and a 19% equity interest by the bank in a stand-alone subsidiary that later would be rolled-up into one class of shares for a capital event. They have very smart people in a change-adverse, risk-adverse, complicated organizational and dynamic environment. On average successful partnerships took well over 2 years from the first meeting to launch. The unsuccessful to successful marketing rate for big institution partnerships was roughly 15 to 1 - it's expensive and they generally only buy after they have built your costs into their November corporate budget for the following year. On the positive side, it is a wonderful sales proof statement to be able to tell all prospects that you have a partnership with, say, Citibank. That statement of fact suggests that your product and you are credible and make it easier for other prospective customers to approve your proposals. On the negative side, it's impossible to dance with a 50 ton Gorilla. Certain large companies are well known for doing intensive due-diligence on your product and then building it internally under their brand - I know who they are but will not list them. You simply have to never respond to their RFPs. Basically you have little no negotiating power. Pricing will likely be reduced to almost a break-even level and performance standards will be set very high, particularly if their business represents a very large portion of your revenue. One big challenge is that the people responsible for your relationship change so frequently - every time someone quits or they have a downsizing or reorganization. At that point its necessary to resell you and your product benefits to a stranger who has no vested personal interest in the partnership. Contracts to protect your investment generally do not. If the 50 ton Gorilla wants to break your contract they are generally not afraid of a law suit or negative market feedback. They will simply move their business even if it involves disentanglement. Bottom line, from my experience - get a few customers with great brand namesfor marketing to others and that you can use as references but never view them as your core sustainable business revenue. Its a great advertising "wow" to say "we serve JP Morgan Chase." They are roughly akin to getting Nordstromas an anchor tenant for a new shopping mall. Every tenant sale after that is allot easier. You may want to touch base with ex-providers to Microsoft, Citibank, Sears, Walmart, etc. to get their experience. This is a very superficial response to an issue that is far more complicated.

Glenn Donovan Vice President of Sales (fractional)

August 27th, 2015

Without knowing much more it's impossible to say. What is the nature of the "partnership" you mention? Can you go to market without them? Who is the target market? Will you be competing with large securities firms and will their likely be a competitive response from them? 

I can tell you that the overhead of dealing with any large corporation in terms of cost of sales and managing the ongoing relationship is high. Any company involved in capital markets has it's future tied to the vagaries of the capital markets and their forecast can change in a heartbeat. I've sold extensively to such large firms and they are notorious for changing plans and delays due to economic/market turmoil as that's just part of their business. It's an inherently unstable environment for planning.

Contrast this with say insurance. They have a long term thinking/planning culture and much more stable financial conditions so there is much less rigamarole. In general I tell people who want to sell to Wall Street (a bucket term that doesn't tell me enough, fyi - is it prop trading, asset management, investment banking, institutional brokerage, dark pools etc?) is a high risk, very frustrating endeavor and they had better expect volatility and frustration. 

Steve Everhard All Things Startup

August 27th, 2015

A little more information is needed really or we're shooting in the dark. It depends where your solution lies and who your customers are. Are the financial institutions part of the infrastructure that you operate in, your clients, recommenders, implementers, etc,. New technology that affects core banking solutions takes a long time to evaluate, approve and roll out. Fin Tech covers a multitude of potential solution areas so there aren't really any clues in your question about where you fit.

If you want a partnership where they are introducers, or where they package up your product then you are most likely dealing with marketing teams and the decision process is different. The risk factors are repetitional rather than operational.