Our VC told us they won't follow for Series A. At the worst moment
17 comments
I'm not surprised the neo bank idea was shut down. The profit margins are really low and moving forward, capital is going to be expensive.
In India, most neobank startups are bleeding money through rewards and incentives funded by VCs and they are all shutting down one by one.
There is no moat. Support is expensive. They are still tied up with a traditional bank because getting bank license is not an option for startups. This is the case almost everywhere, not confined to India. You would be working with a legacy bank and inherit all the limitations.
Banking is free for most people. UPI and rupay run by government agencies result in 0% charge for merchant and consumers. So you can forget about any transaction related fees.
This might not be common across the world but there is no lock in when investing in funds in India. You cannot lock in customers for mutual funds and related investment legally anymore as of last year, I believe. So not possible to make profit on investment management side.
It's really tough for a neobank.
In India, most neobank startups are bleeding money through rewards and incentives funded by VCs and they are all shutting down one by one.
There is no moat. Support is expensive. They are still tied up with a traditional bank because getting bank license is not an option for startups. This is the case almost everywhere, not confined to India. You would be working with a legacy bank and inherit all the limitations.
Banking is free for most people. UPI and rupay run by government agencies result in 0% charge for merchant and consumers. So you can forget about any transaction related fees.
This might not be common across the world but there is no lock in when investing in funds in India. You cannot lock in customers for mutual funds and related investment legally anymore as of last year, I believe. So not possible to make profit on investment management side.
It's really tough for a neobank.
I agree with you around the analysis, but how do you explain the success of Ramp in the US then? Re India, will RazorPay win on the neobank side as well? As they have the critical size?
Ramp is focused on corporate finance management than a regular neobank.
They don't take individual customers or startups without funding. They are focused on high ticket corporate customers.
For Indian market, razor pay and open money would be sort of equivalent focused on corporate banking.
They don't take individual customers or startups without funding. They are focused on high ticket corporate customers.
For Indian market, razor pay and open money would be sort of equivalent focused on corporate banking.
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I work in finance and I am not sure if I want to applaud or feel for people starting neobanks. The amount of regulation and infrastructure needed to deal with other people’s or companies’ money is downright insane and requires tons of upfront investment.
Maybe I do not understand what “neobank” is. Is it that they concentrate on a very narrow part of banking functionality that is relatively light on regulation? Or do they try to creatively interpret the regulation, Uber-style?
Maybe I do not understand what “neobank” is. Is it that they concentrate on a very narrow part of banking functionality that is relatively light on regulation? Or do they try to creatively interpret the regulation, Uber-style?
Most neobanks don't start with a banking license.
So they're the equivalent of Paypal (Money transmitting license?)
They can hold/transfer money but they're not protected by regular banking deposit garantees.
So yes, they can have reduced costs/regulatory overhead when starting up.
Also they avoid legacy infra (physical and digital)
- No 1000s of branches/employees across the country
- No legacy digital systems (Mainframes/COBOL)
- No M&A spaguetti from acquiring 10x banks over time
So they're the equivalent of Paypal (Money transmitting license?)
They can hold/transfer money but they're not protected by regular banking deposit garantees.
So yes, they can have reduced costs/regulatory overhead when starting up.
Also they avoid legacy infra (physical and digital)
- No 1000s of branches/employees across the country
- No legacy digital systems (Mainframes/COBOL)
- No M&A spaguetti from acquiring 10x banks over time
Obviously depends on jurisdiction, but believe some jurisdictions have traditional banks that specialize in being the “backbone” for some neobanks and the customers are really just customers of those banks.
I am skeptical of "professional" founders. How can you come up with useful and feasible products in a couple of weeks without any deeper knowledge about markets, demand, etc.? To me this sounds mostly like business school kids throwing around buzzwords.
Not sure what you mean by "professional" founders?
VCs?
Maybe I used the wrong word. What I mean is this: Jobs and Wozniak started Apple because they were passionate about computers and had a vision about how they should be built. Page and Brin wrote their dissertation on PageRank and related topics before they started Google.
The people in the article seem to want to be entrepreneurs first, and think about actual business ideas after.
The people in the article seem to want to be entrepreneurs first, and think about actual business ideas after.
The author of the article and her team, I think.
Some are just good salespeople. Selling is a large part of gaining traction. I think a lot of good salespeople go out with an idea, try to sell it to potential customers, come back with feedback on what the potential customers actually need and adjust the product accordingly. Being able to get your foot in the door with a lot of potential customers is a very valuable skill. You don't need the world's greatest idea when you start.
I don't understand why a VC who initially supported one idea would or necessarily should support a pivot to a completely different one that they already aren't a fan of. Yes there are some companies that pivoted and succeeded but that doesn't mean there is something special about the pivot itself. It makes sense that your investor, who doesn't like neobanks, would not want to invest in a neobank startup.
How did you decide to pivot to a billing solution?
It seems that you are evolving in this space right now, when looking at https://getlago.com.
Also, did you pitch the new idea and all investors were in? I think a lot of companies are living this tough pivot situation, and finding a new idea is hard…
Also, did you pitch the new idea and all investors were in? I think a lot of companies are living this tough pivot situation, and finding a new idea is hard…
There's an article where they explain it: Why billing systems are a nightmare for engineers[0]
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[0]: https://www.getlago.com/blog/why-billing-systems-are-a-night...
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[0]: https://www.getlago.com/blog/why-billing-systems-are-a-night...
>> When Qonto was at seed, investors were wary because acquiring a SME customer cost around €3,000. But the Qonto team managed to cut this cost by at least 50 times — consistently and at scale.
- How did Qonto cut cost of acquiring customers by 50x?
- Why was this not reproducible?
- How did Qonto cut cost of acquiring customers by 50x?
- Why was this not reproducible?
Thanks for the transparency! This happens often for firms with strong beliefs about certain spaces. With waves of new founders over the past 3-4 years, it's helpful to normalize this transition phase.
we were not the right team for Web3
I commend you on your foresight for this decision.
I commend you on your foresight for this decision.
I do think most web3 founders are newbies, but somehow you need to be very passionate about the space...
Yeah a combination of people constantly posting hate on Web3, the need to spend a lot of time keeping on top of a stupidly fast sector, and the users demanding you move fast for maximum ROI while also demanding perfect security is just a lot to deal with mentally. I quit Web3 earlier this year.
People would stop hating it if useful applications using web3 technology would appear. So far it's all just speculation, get-rich-quick-scheme based stuff or stuff that works without web3 technology.
Wouldn't "deluded" instead of "passionate" still fit more?
Calling someone "web3 founder" is as weird to me as calling someone "sql founder". I am still waiting for someone to show me the killer app everyone uses, or provides any other value besides speculation and how it requires or just works better with "web3 tech".
Calling someone "web3 founder" is as weird to me as calling someone "sql founder". I am still waiting for someone to show me the killer app everyone uses, or provides any other value besides speculation and how it requires or just works better with "web3 tech".
Yup it requires an unwavering belief, not just a 'spark of curiosity' x opportunistic, which was our case.
Thank you for sharing this. Very tough situation for you and your team.
Curious to know what the feedback was from YC partners? Did you ask for advice? Was the choice to pivot largely driven by the feedback of the VC or something you already planned to do?
Are you raising any more money? If so please send me wire instructions [email protected]
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I'm curious. What was your original idea that you trashed?
Ok im curious, how much cash do you have in the bank left?
Can't share yet but enough to start a new product with an 8-people team!
Why is this a Tell HN? I thought those were for providing information of general utility to the HN community (twitter is down, etc.). I expected this was a name-and-shame of some VC, but instead it's a link to a blog post.
Even after reading the text in the Tell HN multiple times, I still don't know what exactly happened. IMO, a Tell HN should be a self-contained post that actually tells HNers something that is particularly timely and of general relevance. It should not be akin to "read my blog post about something that happened to my startup".
This seems like clickbait, especially with the title.
Even after reading the text in the Tell HN multiple times, I still don't know what exactly happened. IMO, a Tell HN should be a self-contained post that actually tells HNers something that is particularly timely and of general relevance. It should not be akin to "read my blog post about something that happened to my startup".
This seems like clickbait, especially with the title.
I have to agree with this. I empathize with the desire to share, especially when you're in the dumps. I've been through the experience of VCs ditching at the closing table (worse than OP's situation) and it's brutal, but I didn't feel that in itself was worthy of sharing with the HN community. There are other, more appropriately forums for the cathartic experience OP is hoping to have by sharing with others. As you say, it'd be one thing if there was something generally useful or relevant here, but I'm just not seeing it.
Yes we need to focus on important subjects here like what flavor of toothpaste Elon is using today for example
Morale was at an (I believed) all-time low. We came with a 'verticalized neobank' idea (we have a strong background in fintech) and got slapped in the face by our VC.
It was hard to hear, the temptation to push back and/or shut down to end the spiraling was strong. I believe this happened to a lot of founders, but we decided to put it out on the open on Sifted, to normalize this very messy moment, and the mental health challenges implied: https://sifted.eu/articles/startup-pivot-part-2/