Starting a new company is always hard, but starting a fintech venture presents some unique challenges. That is something that Sophia Lin, MBA ’12, found out the hard way.
“We didn’t realize until we got our hands dirty that the hardest part of starting our company was going to be data,” Lin said.
In 2016 Lin, along with Andrew Kelley, co-founded Keel, a fintech startup that functions almost like a social network for investing, connecting rookie investors with more seasoned ones who can show them the ropes.
The company’s core technology is an algorithm that aggregates investment data from hundreds of brokers. This lets people closely follow their returns and also highlights when people have outperformed the market. Investors can then pay a fee to follow those who have performed well, helping them make smarter investment decisions.
Here is what Lin learned about starting and launching a fintech company:
It is going to be more expensive than you think. Starting a new business is never cheap, but Lin says that starting a fintech venture involves costs that aren’t always evident to outsiders.
“Starting costs are higher than other industries because of data, infrastructure, and security requirements,” Lin said. “Data is expensive, which stops a lot of early stage startups from entering this field. But you need data to build your product.”
Lin notes that companies like the FinTech Sandbox — that offers financial data for fintech companies to use when they are just getting started — or fintech incubators that help them connect with other people in the same position can help.
Additionally, user acquisition cost — or cost of marketing to and acquiring new customers — is expensive for financial services in general and fintech businesses in particular. Entrepreneurs need to keep all these things in mind when starting a new venture.
You are going to have to clean up messy data. All technology companies deal in data, but fintech companies deal in financial data. And, according to Lin, “financial data is not only expensive, it is also very messy.”
Lin says when a company is pulling data — whether from leading data sources, third-party vendors, or smaller companies — it has to expect errors. “There will be missing data, there will be incorrect labels, and incorrect data that you will have to clean up,” she said.
While this is important for any fintech venture, Lin says it is especially important for Keel, since the accuracy level required for the company is extremely high. One mistake can mean delivering incorrect results to customers, which is why she and Kelley have put so much effort into training their algorithm — using real data that dates back 17 years — and applying machine learning to further clean up their data.
“A lot of people come into this space just thinking they can plug in some data API and they are good to go. Unfortunately, it is not true,” Lin said. “You will need to work on further data manipulation to get it going.”
Find a cofounder with a complementary skill set. Lin recognizes that this is important in any startup venture, but thinks, “this is particularly true for fintech. Financial services are very specific, and domain knowledge is really important. But at the same time, you need someone who can help you build the product,” she said.
With Keel, Lin had worked in banking for several years, and Kelley had a technology background. Only by combining the two skillsets were they able to start Keel — Lin has the financial know-how, and Kelley came up with what Lin calls the “secret sauce” to cleanse the data central to Keel’s business model.
Additionally, acquiring talent to build the team can be a challenge for fintech ventures. Ideally, Lin said, fintech startups will find people with both financial and technology backgrounds. Since that can be hard, Lin suggests looking for talent with strong domain knowledge of either finance or technology, but enough training or knowledge to be able to understand the other side.
Beyond that, Lin said when starting a fintech venture it is important to “be flexible. Be adaptable. Because you will hit a lot of unexpected challenges. It is good to be stubborn, but at the same time not to always hold on to your original idea. Think beyond that. Working on something that is not as sexy — even though it might not look as attractive — that is your gold mine.”