Over the past few years, innovative solutions in the financial industry have become widespread. One segment that took place in this direction is fundraising. Innovations in financial technology have transformed the definition and practice of fundraising, especially for modern-day start-ups and startups that are medium-scale enterprises.
From centralizing or automating some functions to increasing companies’ access to funding, FinTech helps firms collect funds faster and more effectively. In today’s fundraising environment, it is essential to question FinTech's significance to this topic.
Expanding Access to Capital
"Conventional forms of capital procurement only allow an organization to secure capital from a specific pool of buyers, such as investors or financial institutions. FinTech has eliminated these barriers through developing marketplaces where startups and investors worldwide can access each other.
For instance, the two famous firms that reach out to anyone online for support are Kickstarter and Indiegogo, where people contribute funds to different entrepreneurs without limitations. Equity crowdfunding platforms, Seedrs or Crowdcube, take this a notch higher, where investors are allowed to purchase an equity stake in promising Startups.
Due to this democratization of fundraising, one can support and invest in anything from anywhere, making crucial capital sources available to startups." says Sam Browne, Founder of Find a Band.
Streamlining Investment Processes
"With the help of FinTech tools, essential investments are made easy, and a lot of time and paperwork are saved through automation and practical task management. Most FinTech platforms provide compliance solutions, due diligence screening, and investment tracking tools in a single solution.
This eliminates the need for extensive, time-consuming, hands-on processes that have always come with fundraising efforts. For instance, there is a trend that accurate funding rounds can occur online with the help of sites like AngelList, where aims, aspirations, and even legally binding documents can be signed," says Graham Grieve, founder of A1 SEO.
This model has positive implications for startups, where funds can be obtained more quickly than through traditional fundraising, and investors who receive projects they can easily understand and fund.
Enhancing Transparency and Trust
"One of the most significant issues in investing is that fundraising could be more transparent. The usage of blockchain means that all the transactions made in the FinTech platform are recorded on the blockchain and, thus, cannot be tampered with, increasing trust among investors on the platforms.
Blockchain tech presents a transparent record book where investors do not doubt where their money goes or how it is utilized. ICO and STO are the two primary blockchain fundraising options that offer ways to avoid fraud, as most terms are set in contracts and are implemented through smart contracts." says Mark McShane, Digital PR Agency Owner of Cupid PR.
The increase in transparency benefits the investors of the FinTech platforms because they believe in the projects they are funding.
Personalizing Investor Relations
Some FinTech platforms are built with CRM or Customer Relationship Management to manage investors. By employing high-level analysis, companies can divide their investors, understand their activity level, and adjust respective communication and contact approaches.
Gemma Hughes, Global Marketing Manager at iGrafx, inserts, "It is possible to repeat clients or clients on previous financings, and thus, using unique outreach assists firms in fostering the continuity of these relationships with investors. Salesforce and HubSpot provide advanced tools for tasks related to investor relations; startups often aim to maintain good relations with their supporters.
When investor’s needs are considered and met, the companies enhance the level of interaction and shareholder loyalty among investors."
Reducing Costs with Automation
"One of the ways that FinTech has reduced the cost burden of fundraising is by automating tasks that would otherwise require input from third parties. In payment processing, compliance, and documentation, automation decreases the time and costs needed to accomplish each phase of the fundraising exercise.
Electronic signatures sign and disperse documents and funds, a past preserve of several departments or third parties." says Daniel Foley, Director at Assertive Media.
For instance, Fundera or Lighter Capital is a FinTech that automates the fundraising process for SMBs, decreasing the cost of capital-raising for the companies. In other words, more funds can be available to startups and investors at a lower price for innovative purposes.
Offering Real-Time Analytics
Real-time data analytics is a revolution in modern fundraising. Through FinTech tools, businesses can track the success of funding as it occurs, and more so, it can track the data relating to investor behavior, funding place, and market conditions.
"Some tools are Google Analytics, Plaid, and Amplitude; startups use these tools to understand investor activity and, in real-time, adjust strategies to maximize investor engagement and conversion. The possibility of experiencing situations live suggests that businesses can make knowledgeable decisions and respond to investors’ feedback or changes in the market," says Dr. Nick Oberheiden, Founder at Oberheiden P.C.
Crowdfunding and Peer-to-Peer (P2P) Lending Platforms
"Two leading innovations in fundraising experienced through the Fintech industry include crowdfunding and P2P lending. On the one hand, crowdfunding hubs let companies obtain funds from many buyers who give a small amount; on the other hand, using P2P lending platforms, people can invest in companies without the intermediation of banks.
LendingClub and Funding Circle act as middlemen in matching small businesses with investors who get reasonable returns on their funds." adds Gerrid Smith, Chief Marketing Officer at Joy Organics.
Since the opportunity to obtain a loan from a company’s employees may not be popular, P2P lending has found its purpose in unlocking the funds necessary for developing small companies or startups that may not be eligible to meet traditional bank requirements.
Globalizing the Investment Landscape
"Through FinTech applications, fundraising has been coupled with the world market, and opportunities globally can be easily tapped. Two examples of such portals are GoFundMe, WeFunder, and Angel Investment Network, which unite start-ups and entrepreneurs worldwide." shares Dean Lee, Head of Marketing Manager at Sealions.
The opportunity to seek funds across borders without physically moving from one point to another eliminates barriers to entry. It gives the startup and startups a shot at a vibrant world market. International fundraising also introduces a variety of perspectives and ideas on projects to the global business environment and helps startups launch domestic markets.
Conclusion
FinTech has become a crucial part of modern fundraising, and many companies have succeeded in collecting funds. Through tools that improve accessibility, clarity, customization, and speed, FinTech has also reinvented how a business can raise funds.
From crowdfunding opportunities to blockchain-based simplicity, FinTech helps make the necessary tools accessible for a company to start and thrive. Moving to the next stage of technology growth will provide more opportunities for creative products in the FinTech industry, defining the future of fundraising.
