Fintech Investment is Exploding — 5 Ways Governments & Ecosystem Builders Can Help

with Sheel Mohnot

Investment in fintech companies is up 8X in the past 5 years, with over 200 financings for a combined $4.9 billion in 1Q2016 alone.  

“Silicon Valley is coming. There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.”

Jamie Dimon, Chairman and CEO of JPMorgan Chase, pointed out: “Silicon Valley is coming. There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking. They are very good at reducing the ‘pain points’.”

Quarterly financing to VC-backed fintech companies has been growing immensely:

Financing Trends

But investment is not flowing freely everywhere.  

For example, in 1Q2016, Chinese fintech companies received $2.4 billion in funding (albeit primarily from two mega-deals), while the rest of Asia received only $0.2 billion.  

Meanwhile in Europe, deal count increased but the amount of capital invested did not.  Even when the investment flows, the performance often does not.



After investing in more than 130 fintech startups in 15 countries and providing ecosystem development advisory in markets around the world, we’ve identified three core challenges that most ecosystems face with fintech.

Fintech’s 3 Ecosystem Challenges

1. Regulatory regimes are often ill-suited for fintech.  

Regulations in the finance sector are often unclear or highly complex, and regulatory processes and agencies may be slow.

For example, in the U.S., there are 48 different rules (state by state) around what constitutes a money transmitter business. Many states require a surety bond that varies by state and can cost over $1 million. This alone prevents many fintech companies from getting off the ground.

2. Traditional financial institutions may hold down fintech startups, intentionally or unintentionally.  

Not long ago in the U.S., many banks did not even entertain meetings with or extend invitations to fintech startup founders.

When some banks did begin engaging with fintech startups, it was with the idea of gaining an edge over competing banks by co-opting and closing off the startup — which could in turn prevent the startup from achieving its potential.

An analogous hypothetical would be forcing Visa to be exclusive to certain issuers and merchants, rather than allowing ubiquity.

3. Customer preferences may not be ready for certain fintech solutions.  

Customer acquisition is very difficult in fintech.

It’s relatively easy to build a big invite list, but it’s very hard to get people to actually change financial institutions. We (the post authors) personally still bank with the banks where we got our first accounts more than a decade ago. Insurance, Loans, and Mortgage are the 3 most expensive word groupings to acquire users for on Google.  

Banks in the US spend over $500 to acquire a single user, and over time many startups will get there as well. Unlike some other industries with a higher viral coefficient, in fintech you often spend more to acquire the millionth user than you did to acquire the thousandth.

Banks in the US spend over $500 to acquire a single user, and over time many startups will get there as well


These challenges can’t be fixed overnight, but that doesn’t mean there’s nothing that can be done.

5 Ways Goverments Can Help


1. Create a “regulatory sandbox” that provides startups the opportunity to test new ideas without immediate threat of regulation.  

Regulating early-stage startups — before they have found product-market fit and achieved any meaningful scale — seems generally unnecessary from either a systemic risk control or consumer protection perspective while stifling innovation before it starts. Exempting startups from certain regulations in the early-stage can enable innovation and experimentation.  

The UK’s Financial Conduct Authority (FCA) has done this already, and the Australian Securities & Investments Commission (ASIC) is looking at doing something similar.

2. Offer fast and transparent regulatory review of potential new fintech products or services.  

Once startups emerge from the earliest stages they ought to be compliant.

Reducing the regulatory review process from years to months or from months to weeks would substantially reduce legal expenses and could even mean the difference between life and death for a startup.

3. Create a support system or kit to help fintech startups meet regulatory requirements

Even founding teams with finance and legal experience can find industry regulations to be a challenging maze. Developing and sharing resources could reduce friction in the industry and ensure early-stage compliance.  

Accelerators specializing in fintech are one effective way. For example, startups in 500’s fintech accelerator track get a nontrivial amount of support to sort out regulatory compliance. In the UK, the FCA established an innovation hub with staff available to guide any startup through financial regulation.

4. Roll out consumer awareness initiatives to increase demand.

PSA campaigns to improve financial literacy can help clarify the potential value of switching to new fintech products & services.  

Campaigns to raise basic awareness of existing protections can help overcome risk-related hurdles to adoption. The effectiveness of startups running such campaigns is likely low, whereas the cost can be quite high. This is a clear market failure that governments can rectify.

5. Encourage traditional financial institutions to invest in or partner with fintech startups — preferably non-exclusively.  

Some banks and some fintech startups have already indeed realized that partnering can be better than competing, so we’re pleased to see that this is happening on an ad hoc basis.  

It would be even better though to establish formal processes and even alliances.  JPMorgan is moving in this direction with their upcoming announcement of a startup residency program.


Ultimately, the selection of ideas and details of implementation depend on specific market context. Moreover, the efforts need to be part of a broader ecosystem of investment and other support.

If you’re interested to learn more or do more, please contact us:

– For fintech investment, Sheel at

– For ecosystem development and corporate innovation advisory, 500 managing partner Bedy Yang at


About the authors:

Sheel is a partner with 500 Startups and head of the recently-announced 500 FinTech fund.  His prior startup experience includes 2 successful fintech exits, a payments company and a high-stakes auction company.  He also created and hosts a podcast called The Pitch, which has >10,000 listeners.

Eddie is a venture partner with 500 Startups.  He is a head of the recently-announced 500 Startups Vietnam fund and is supporting development of 500’s corporate innovation and ecosystem development advisory offerings.  He has invested in fintech startups and provided advice on promoting fintech investment in Vietnam.

PreMoney 2016: The Global Investment Community Crosses Paths in San Francisco

PreMoney Brings Together US + International Angels, VCs, LPs

Eric Osiakwan, Managing Partner with Chanzo Capital in Accra, Ghana, traveled more than 7,600 miles to attend PreMoney San Francisco.

“The world is flat,” he said, sipping a Coke immediately after his panel discussion, “Crossborder Investing: Let’s Go Global, Baby.”

“When I started in tech in 1998, one of the terms that really rang in my ears was ‘the global village,'” said Osiakwan. “Today, it’s very real.”

Eric Osiakwan and Jill Ford
Eric Osiakwan and Jill Ford

How real?

Earlier in the day, Osiakwan bumped into Jill Ford, Head of Innovation & Entrepreneurship for City of Detroit. “We first met in Ghana in 2002,” he said. “I didn’t know she would be here! After I finished my lunch, I was walking out and said, ‘I know you!'”

“This was actually a wonderful surprise,” said Ford, a former Bay Area angel who now manages a team attracting and nurturing startups and SMBs in the Motor City.

“PreMoney should be mandatory for new investors.'”

– Jill Ford, Head of Innovation & Entrepreneurship, City of Detroit

“I’ve been a great supporter and a big fan of 500 Startups for a while,” she said, noting that she and Osiakwan would meet again the following day at the 2016 Global Entrepreneurship Summit. “I was very excited to add PreMoney to my trip, and I’m always so excited when I get to see the kind of content that we had today and a fascinating set of speakers.”

Although Ford has lived in Detroit for years, she said 500 Startups’ social media and events keep her connected to the latest startup news and trends.

“I’m very excited about what they’ve been doing to promote diversity in tech and also have a global reach with regard to connecting entrepreneurs and investors,” she said.

PreMoney should be mandatory for both new investors, and more experienced hands looking for insight, said Ford.

“This is the forum for bringing together entrepreneurs and investors from a large geographic scope to really be the launchpad for great innovation, great ideas and being able to grow startups,” she said.

Content From Global Investors

“This is my second PreMoney,” said Monique Woodard, Venture Partner with 500 Startups, “so I’ve come to expect a high caliber of content from some of the best investors in the business. That’s consistently what 500 and PreMoney delivers.”

Like every other person I spoke to, Woodard’s favorite session of the day was “the three generations of Drapers. Getting to see them interact as a family — and not as investors — was heartwarming and gave us a little insight into the family,” said Woodard.

“I also got a lot out of Jason Calcanis’ time,” she added. “Every time Jason talks, I learn something new.”

Who should attend PreMoney? “As a newbie investor, I would say any newbie investor,” answered Woodard. “You will learn a ton of stuff from a ton of people who have been doing this for a really long time.”

“Every time Jason (Calacanis) talks, I learn something new.”

– Monique Woodard, Venture Partner, 500 Startups

The June 2016 PreMoney gathering “really set the bar higher than the event I attended last year,” she added. “I enjoyed seeing some investors I know, hearing their thoughts on where the industry is going, and I expect to have a really good time at the party this evening.”

“I learned a lot, even being internal to 500,” said Sheel Mohnot, FinTech Partner at 500 Startups. “There was a panel on vertical funds that went very well, and it’s always entertaining to hear Jason Calcanis and Dave McClure. I just wish I could have gone to everything.”

Fireside Chat with Dave McClure + Dave Morin
Fireside Chat with Dave McClure + Dave Morin

“Recently, there’s been more of a focus on cross-border, which is I know, inherent to 500’s focus, but they’re bringing some interesting characters and players who are doing some interesting things that you don’t really see anywhere else, even in San Francisco,” said Mike Prasad, Managing Director for LA-based incubator VentureLab.  “I come here mainly for that, because it doesn’t really exist at the other events I’ve been to.”

“Increasingly, it’s becoming a globalized event, and it’s going to be the best thing that ever happened to Silicon Valley,”

“Increasingly, it’s becoming a globalized event, and it’s going to be the best thing that ever happened to Silicon Valley.” concurred Osiakwan.

“Casual Vibe” at PreMoney Encourages Learning & Relationships

“PreMoney San Francisco has one of the best mixes of people in the VC scene,” said Prasad, “Getting them all in one room, I can’t think of another event that has that kind of mix.”

“Investors of any type should attend,” Mohnot advised. “There’s so much to learn from what other people are doing. They’re clearly so much more fun and not boring,” he said. “You can actually stay awake during the whole thing.”

PreMoney is a great way to get the view from 30,000 feet, and also for doing deep dives, said Prasad. “It’s interesting to see what people are looking at and get the general feel of the room where their heads are at,” he said. “I don’t really know of another way to do that, short of talking to tons of people over the course of a year.”

“PreMoney is very useful for getting information and a good time out of the event, but it’s also something you can jump right into.”

– Mike Prasad, Managing Director, VentureLab

Additionally, Prasad said PreMoney is a unique networking opportunity. “All these people globally who are in VC are in town at one time, which is great.” The ability to participate in open discussions with other investors is also a strong draw, he said.

“You get someone on stage who’s looking at a trend, and then you get the immediate response from someone else, and seeing that dynamic is telling,” said Prasad.

Mike Prasad, VentureLabs
Mike Prasad, VentureLabs

“The last thing is relationship building,” he noted. “We don’t do any deals here per se, but historically, a lot of the relationships that we build here have led to that.”

Typical for a 500 Startups event, “it’s a casual vibe, but it’s not something like you feel it’s a joke,” said Prasad. “People are very serious and doing cool things, but it’s not like you can’t talk to people and have an open conversation. It feels very casual, because there’s no reservations per se.”

That openness creates a fertile environment for exchanging data and ideas, said Prasad. “If you’re someone who’s new to VC, it’s definitely a good event to get perspective for thinking about things you haven’t considered before,” he said. For more experienced investors, “the knowledge transfer there is also interesting.”

“PreMoney is very useful for getting information and a good time out of the event, but it’s also something you can jump right into,” said Prasad.

“I think it’s one of Dave’s best events.”

Missed PreMoney?

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“Good Companies Solving Real Problems” — That Happen To Deal With Your Money

Before becoming 500 Startups’ FinTech manager, Sheel Mohnot consulted for a company that was striving to be more competitive after the 2008 financial crisis.

When pitching ideas, “the answer was often, ‘raise the fees on your customers,'” said Mohnot. “I didn’t like that.”

In his view, shaking users down for nickels and dimes creates little value over the long term. “I fundamentally believe that the way to build an amazing business is to make people’s lives better.”

Sheel Mohnot
Sheel Mohnot

Mohnot discovered his affinity for financial services and products as an early team member of Kiva, the social lending platform that’s granted more than $837M in micro loans to 1.9M people. “It has had a huge impact on what we’re trying to do at 500 FinTech,” he said, “which is, give customers a better user experience and make their lives easier.”

In Batch 16, there are nine companies on the FinTech track:

  • Albert gives simple, free financial advice and lets you act on the advice directly from the app.
  • Arrowpass is an NFC-based closed-loop payment solution and secure gate control for events.
  • Ethic offers effortless ethical and impact investing.
  • Finova Financial is a socially-responsible online lender that provides fast, affordable loans based on the equity in your car.
  • Float is a mobile-first credit card for millennials (minus the credit check).
  • iBillionaire is a mobile asset manager that lets you invest in the same strategies as billionaires with one click.
  • Qwil: Instant pay for independent contractors (b2b2c).
  • Rize is an automated savings tool based on behavioral science.
  • Romit is a wallet and payment platform that helps merchants with high chargebacks reduce fraud.

“We’ve got really good people,” said Mohnot. After Batch 16 concludes, “the only four companies that are based in San Francisco are all going to get an office together,” he noted. “They really enjoy each other’s company, and they’re in similar businesses, which mean they can help each other out.”

Is there a thread that connects Batch 16’s FinTech companies?

“They’re solving real problems,” Mohnot told me. “It just so happens that the problems they’re solving are in FinTech.” All nine firms have a unique focus, but they all support the same underlying goal, he said.

“For example, Ethic is about sustainable investing for all, and ibillionaire lets you track and directly invest in the portfolios of billionaires,” said Mohnot. “While they’re in totally different market segments, they’re also doing much the same thing, which is helping people invest money.”

Companies that are accepted into 500 are already operating at a higher level, Mohnot said. “Part of it is just coming into an environment where you’re expected to grow week after week after week. There’s something about being here that makes people want to work hard, and be excited about it.”

“Despite the fact that many of the founders have a background in finance, none of them are your ‘typical’ banker.” — Sheel Mohnot

Mohnot’s Batch 16’s companies go through the same 4-month bootcamp as other firms in the accelerator, but “because we have this track with FinTech, I’m able to bring in outstanding speakers,” said Mohnot. “Some of the speakers we’ve had include Ken Lin, CEO of Credit Karma (a 500 Startups portfolio company), Sasha Orloff (CEO of LendUp), and a bunch of other awesome speakers,” he said.

“We’re bringing in people for FinTech specifically,” he noted, including speakers who can speak knowledgeably about compliance economic modeling for specific market sectors. “You just learn a lot from people who’ve done it before you and have been successful,” he said. Because each batch has a critical mass of founders developing financial products and services, 500 attracts investors who are actively seeking opportunities, Mohnot added.

On May 9, Mohnot is producing 500 FinTech Preview Day for approximately 75 investors, press and potential partners only. “Typically, you’ll meet somebody who would invest in you, but the investment doesn’t necessarily happen there,” he said. “You meet someone, then the next week, you have two more meetings with them before the deal is done; that’s generally how it goes.”

“If we didn’t have a track, they probably wouldn’t come in to see just one or two companies,” said Mohnot. “Instead, they get to come in and meet with eight or nine companies at once, and they like that.”

Most of the FinTech companies in Batch 16 focus on personal finance but “for whatever reason, a lot of these things go through cycles,” he said. “A few years ago, it was payments, then lending, and now, insurance is the next hot space, so I’m definitely looking to bring in some insurance companies in this next batch.” Although all 9 companies are US-based, Mohnot said he plans to bring in more international founders in future Batches.

Every founder must complete 500 Startups’ AngelList application, “but many of the companies on the FinTech track came through other VCs,” said Mohnot. “Going forward on the application, I think we’ll just have a checkbox for FinTech.” Applicants are encouraged to meet in San Francisco with Mohnot and his team.

“They should have a product that I can see,” he said. “I’m not really interested in talking to anyone who’s just got PowerPoint.” Does that mean applicants need to show up with a working prototype? “It doesn’t have to be live for the general public, it just has to be something that I can see,” explained Mohnot. “What I want is something that’s going to be live during the program, so we can add value.”

“You go to work, and you feel like someone’s really there for you.” — Yinon Ravid, Albert

Yinon Ravid co-founded his financial advice app, Albert, last December and began working on it in earnest shortly before being accepted into Batch 16. In his view, people feel stuck in their current economic circumstances because “it’s so difficult to take action.”

To give users confidence and direction, “Albert connects all your accounts, finds the three or four most important things you need to do right now, and we let you take action directly from the app,” said Ravid. The company has partnered with banks, investment firms and lenders and insurers “so users can seamlessly act on our guidance,” he said.

Although this is Ravid’s second FinTech play, “you start off again in this totally green field,” he explained. “The people here have been amazing, working with us on distribution, getting the word out, honing the message. It’s been great,” he said. “Nothing’s better than building within a community. You can really forge ahead that way.”

“When you have people working on the same thing in the same place, naturally, good things come of that,” he added.

Because most people don’t have enough assets to hire a financial advisor, individual savings and investment plans generally lack strategy, said Raul Moreno, co-founder of iBillionaire.

iBillionaire Raul Moreno founders
Raul Moreno and Alejandro Estrada of iBillionaire

To even the playing field, Moreno and his partner, Alejandro Estrada, analyzed investment data and strategies of leading billionaires to create an asset-management service.

“The great thing about the US is that the systems are so transparent that this information is actually public,” said Moreno. “But it’s hard to understand, hard to explain, and it takes a lot of time to digest the information.”

“Being in San Francisco has given us the know-how to reach consumers” and pin down key distro metrics, Moreno said. “Now, we’re talking to users and making changes very fast.” iBillionaire, an SEC registered investment advisor, will soon permit users located anywhere to invest via its app, he added. “The know-how to do that on a global scale is here, so we’ll stay in San Francisco.”

Moreno said he hopes to set up shop in the same space as another Batch 16 startup. “one of our team is sharing a house with someone from another company, so if we can share a house, I’m sure we can share an office,” he said.


photo: Gabe Rosiak/Flickr