The Smarter Startup

Fintech Developments in the Startup Ecosystem


COVID-19 has accelerated the use of Fintech, and we are seeing a number of trends starting to emerge across the board.

As Fintech continues to be a top destination for VC capital, the sector is driving key developments across the startup ecosystem. According to Pitchbook data, some $1.354B went into 40 Fintech startups, including decentralized finance, in the second quarter of 2021, and the impact on startups now extends into how the ecosystem actually works. As Head of Burkland’s Fintech practice, I recently discussed some of these developments during the 1BusinessWorld Leading Entrepreneurs of the World conference in June.

To put the rapid pace of Fintech in perspective, two recent stats from EY and McKinsey stood out when I was preparing for the conference:

  1. 75% of consumers globally have adopted some form of money transfer and/or payment service (EY 2019), and;
  2. Five years’ worth of consumer digital adoption occurred during the first eight weeks of the pandemic (McKinsey 2020).

Clearly, COVID-19 has accelerated the use of Fintech, and we are seeing a number of trends starting to emerge across the board:

1. Everyone is a Fintech Now

First, everyone is a Fintech now. Every business, every consumer, every customer, every competitor, etc. This is a key starting point for most startups, and understanding how Fintech is reshaping not only their products and services but also the behavior of their users, customers, and investors, is crucial.

2. Demand for Data & Reporting

Secondly, the demand for data and reporting is high and going higher. Due largely to Fintech innovation in financial systems interoperability and financial planning & analysis tools, investors of all stripes now expect quick, easy, and granular reporting about their startup investments. They want KPIs and OKRs available quickly, accurately, and inexpensively. It sounds daunting, but with the right tools and the right resources in place to manage them, it’s not. Hint: Tackle reporting as early as possible – make it a priority to implement and utilize the right tools early on, and establish financial and reporting procedures as soon as possible, even if you’re still small.

3. Re-Evaluating Accounting Practices

Third, the Fintech revolution has raised several macro-level questions around traditional accounting practices. In a Fintech-driven world, are things like net-30 discounts still relevant? Faster processing speeds for payments increase collections and impact a company’s AR / AP. For example, look at the lag between a payroll date and the day your employees actually receive their paychecks. Why does it take several days to “process” payroll? Is it just because the payroll processor is earning the float? Shorter and shorter processing, payment, and settlement time will eventually translate into improved working capital ratios, days sales outstanding, etc.

4. Developing New Best Practices

Fourth, crypto remains one of the biggest question marks in startup accounting. How should digital assets and tokens be carried on a balance sheet? As an intangible asset, as pre-sold revenue, or like a commodity? Some best practices are starting to emerge, but there are few formal regulatory frameworks, use cases vary widely between tokens, and the broader crypto industry is iterating much faster than the rules that govern it possibly could. Eventually, standards will be enacted, but for now, leadership teams should rely on their legal & financial advisors for the right approach for their particular situation.

5. Employee vs Contractor Classifications

Fifth, consider employee vs contractor classifications. I recently wrote a separate post on this topic, and can’t stress enough the importance of getting the distinction both correct AND compliant. The gig economy has enabled startups to engage resources like developers & engineers wherever in the world they are, and for whatever price they are willing to work. Meanwhile, the pandemic sent even domestic teams to the four corners of the country, making the typical startup’s workforce more distributed than ever. This obviously raises questions about reporting, taxes, state nexus, etc. and increases the temptation to just classify everyone as a “contractor.” However, there are very specific guidelines governing who qualifies as a bonafide independent contractor. If you’re a startup CEO, ensuring proper classification of employees and contractors sooner rather than later (your CFO can be a big help here) will save you a lot of trouble during an acquisition or during due diligence for a funding round.

6. Venture Capital Implications

Sixth, consider the operational implications of the Fintech revolution on the VC community. Partly because of the data demands mentioned earlier, investment decision cycles are now flatter and quicker, enabling faster fundraising to startups but also much more quantitative assessments. As Burkland fractional CFOs, we’re always pushing our startup clients to be due-diligence ready. If you have the financials and important documents organized and ready to go, you’ll stand out to potential investors as a professional team with its collective act together. Note, too, that faster access to more complete data about their portfolio companies allows VCs to see trends easier and change course as needed. This became especially apparent during the pandemic, where essentially real-time monitoring of portfolio company contingency planning became essential.

7. Geographic Dispersion of Startups

Seventh, the geographical reach of VC backing is widening in the technology-driven democratization of VC attention. VCs are now working with startups in a wide variety of locales, not just the traditional ones of San Francisco Bay and New York. They’re utilizing technology to uncover the most compelling opportunities in places where others may not be looking and valuations might not be so high. Moreover, the expansion of remote work and the ease with which most of us can hop on a video call these days means VCs are becoming more comfortable with the idea of advancing conversations with a startup remotely, which in turn leads to a huge increase in partnering possibilities. Looping back to the ability to present data the right way, startups can now get the right kind of attention from VCs – regardless of their location.