We asked one of our valued interns (Joe Doyle), to put the CEO of the AWI accelerator program in the hot seat today. Check it out below.
JOE: Can you give me an overview of the AWI accelerators program and what you provide to the start-ups?
TOBY: The program is all about helping Fintech specific start-ups go from early stage, in the current intake it’s the idea stage, and getting them (in a period of 6 months) to be at a point where they can raise a decent amount of equity in order to scale up and enter the market properly. We give them $100,000, $50,000 is cash and $50,000 is a service agreement for operating in our CBD office space and the other is for support/legal services, in return we take a 10% equity stake in their business. It’s a structured program, where at the start of each week we go over their goals for the next week and how they performed against the goals the previous week. Each Wednesday or Thursday night we have a dinner for the start-ups around the boardroom table and have an external guest come in so start-ups have the opportunity to have an informal discussion with someone who is an expert in some area of the financial services industry or the start-up industry. This also gives the start-ups an opportunity to present their pitches to the guests and to get valuable feedback.
JOE: In light of the Global Financial Crisis, bringing with it new capital constraints and regulations, how do you think this has affected the Fintech space in recent years? What will be the implications on the consumer due to this?
TOBY: I think Fintech is exploding around the world despite what is going on in Global Capital Markets. With the internet a lot of disruption came to certain industries quite quickly, such as travel and real estate which are mainly classified type businesses. Retail type businesses have also been disrupted, but it has happened a lot slower. The financial services industry, for a number of reasons, has been much slower to be disrupted. The most important reasons are because it is highly regulated and often dominated by large multinational businesses, which can take time to adjust their business model, particularly in the wealth management side. However, an array of interesting start-ups are directly targeting the end user and trying to provide them access directly to funds without having to go through traditional methods, such as via large multinational businesses. In addition, start-ups are able to provide services in a way that is approachable to an investor, giving them the feeling that they don’t have to go through a financial advisor. This change is coming more rapidly than some large institutions would like to admit. When they have too, the large institutions will be looking to get in the Fintech space very aggressively.
JOE: How do you think the growth of Fintech companies will most notably affect the financial services industry in the future? Globally and in Australia.
TOBY: It’s going to affect it in a number of ways. Most importantly, it’s going to swing the balance of power to the consumer. The balance of power is currently in the court of large financial services institutions. Initially, when these new players come into the market they will take a small amount of market share but over time they will develop a sizeable amount. When that happens large financial institutions will all have to follow suit. This will completely change the dynamic between the consumer purchasing financial products and the institutions providing them. In the short term, there will probably be a fragmentation of the market but in the longer term there will be a series of acquisitions, but it will be a consolidation back to a healthier balance between the consumers and the financial organisations.
JOE: Investment in Fintech companies has been increasingly noticeable in places such as London, is this the same in Australia? What are the differences if any?
TOBY: A lot of disruptive businesses are raising large amounts of venture investment which gives them a chance of making an impact overseas. Australia is a few years behind and it is exciting to see what it coming for us. The Australian market is a bit different in that we have very powerful and profitable banks at the top of the market which means that things will probably move a little slower here. There is a lot of Fintech activity going on at the moment and we are seeing it really building up month-to-month. In the US, the Silicon Valley was mainly built around the fact that Stanford University was close by, which came a number of hardware start-ups. Out of those early successful companies, a breeding ground was developed for great people who then branched out and started their own businesses. In Australia, we have globally significant financial services companies, all of which are fantastic breeding grounds for talented young people who could all be branching out to start their own Fintech start-ups. Combine that with the fact that we are the fourth largest savings pool in the world means that we’ve got an incredible opportunity for wealth focused Fintech start-ups in this market, without having to target other international markets.
JOE: What other challenges do see facing the financial industry as a whole in the future in light of the rise of Fintech start-ups? How will companies seek to overcome these challenges?
TOBY: The more innovative Australia can be come around financial services, the better the industry will become because the big institutions will always have the capital to buy out successful start-ups. The start-ups that are putting pressure on the big institutions ensures that they stay as global leaders. If they didn’t have that kind of pressure you could see a situation where the US financial market gets completely disrupted and then those big disruptors could come and disrupt Australia. It is much healthier for Australian institutions to have pressure on them along the way so they don’t become targets for international takeover or disruption.
JOE: What are the challenges to entrepreneurs attempting to develop Fintech businesses that might not apply to start-ups in other industries?
TOBY: I’ll start broad and work into financial services. Broadly, entrepreneurial businesses don’t start in a vacuums they start in an ecosystem. The key elements of these ecosystems, are that you need to have great universities training great people. That’s not to say that all entrepreneurs have to have gone through university, but it’s an important piece of the puzzle for an ecosystem as a whole. In addition, you need investors and Australia has got a healthy pool of early stage investors, particularly VC funds who are focusing on the series A and B end of the market. Finally, you need the large institutions to provide experienced people, potential partnerships to let that start-up have channels to market and also potential buy-out opportunities to give exits. Australia has progressed a lot in the last five years in a lot of those respects. With the large number of investors and the number of accelerators there is so much opportunity for start-ups at the moment. We believe that the financial services start-up space is a lot different to other start-up spaces in that it is highly regulated, making it very different for a start up to get into this space in terms of cost and navigating through that regulation. Financial services business models are often harder to understand and value for those who don’t understand. This means that it can be harder for start-ups in this space to raise capital because some might not understand how their business model works and therefore might be harder to get people to invest their money. That’s why we saw an opportunity for a financial services accelerator, where we can provide a mentoring network and provide enough seed funding in order to absorb a lot of the upfront costs along with the ability to provide guidance and assistance around financial services.
To learn more about the AWI Ventures FinTech Accelerator check out the following link: http://awiventures.com/