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What do companies, bitcoin trade exchange Luno, payments technology provider, Electrum and authentication and app security provider, Entersekt have in common? Not only are they some of the country’s most exciting fintech startups, but each of their founders are members of Rand Merchant Investment’s fintech startup hub, Alphacode.
Alphacode supports fintech startup founders. Their aim to “support, grow and fund, new and disruptive sustainable, scalable business models”.
We look for a strong CTO who knows how to build low cost scalable platforms, who really understands digital interfaces and design
Its head is Dominique Collett who says the continent offers fertile ground for new fintech services with African startups leveraging the power of communities and social media to make financial services more relevant, while using data to deliver more meaningful financial services on an ongoing basis.
Prodigy Finance offers the world’s first borderless credit model and offers loans to postgraduate students accepted into some of the world’s top universities including Harvard and Oxford.
Launched in 2016, the hub is already behind some of the continent’s most globally recognised startups. Here are 7 ways Collett says they are able to identify winning startups.
Collett says they are not looking for business that are happy to remain small. Some of the businesses they back have gone global and have raised millions of rands in funding. Student financing platform Prodigy Finance, for example, raised R3.19 billion for their platform in 2017.
“We tend to back businesses that are playing in large growing markets with solid margins as it’s very difficult to build a large, sustainable business in a highly niche sector.”
Although tech is an important enabler in delivering a new product or channel, Collett says what they really look for are businesses that are looking to fill a gap in financial services.
“We want to understand the business models and we look for businesses that are operating in “white space” i.e. where there are gaps in financial services. For example, banking and insurance for SMEs, bottom of the pyramid financial services solutions, alternative asset management and risk pool models.”
Collett says one of the most important elements they look for in startups is experience within the fintech space and the ability to solve problems.
“We look for prior industry experience and a combination of skills in the team. In our sector we look for a combination of financial services and tech experience.”
Besides being skilled, Collett says that they usually back entrepreneurs that they “like as people”.
“One of the most common traits across all our successful entrepreneurs is that they are all lovely human beings who treat their teams well, have a sense of humour and are passionate about what they do.”
Collett says the size of the team doesn’t matter, however in fintech they identify successful startups as having four important elements. The first two is experience within the industry, such as in insurance, banking, credit, and the second is “a team member who has strong operational experience so the business can scale”.
“We then look for a strong CTO who knows how to build low cost scalable platforms, who really understands digital interfaces and design. We check whether there is someone who understands regulations and compliance, who can engage with stakeholders to get acceptance for their offering,” Collett says.
An example of this is a business like Luno that makes use of blockchain technology. Collett says Luno has the potential to “disrupt the current digital banking industry as we know it”.
On the topic of making more South African unicorns, Collett says businesses need to be able to scale globally if they want to become billion rand businesses. Some of Alphacode’s businesses such as Prodigy Finance, Entersekt and Luno are on the right path to achieving this says Collett.
“Prodigy Finance, Entersekt and Luno have local operations and are playing on a global stage. They perfected the model in South Africa, and then took it offshore. They are leveraging a low-cost base in South Africa and combining this with exceptional talent – the combination of these two elements will lead to more South African unicorns.”