Building a financial services firm from the ground up is hard. There are all the vagaries of building a business from scratch: hiring the right people, finding the proper product/market fit, building a brand, and acquiring customers. But, for fintech startups, there are also the specific struggles of competing in the financial sector. Regulation requires firms to tightrope their growth and operations. Sure, there’s $1 trillion up for grabs in the financial services marketplace, but compared to other industries, it’s a long and expensive process to acquire new customers.
Around $12 billion of venture capital flowed into upstart financial services firms in 2015. The growing investing interest in early-stage fintech firms has compelled many generalist investment firms to dabble in the industry. But they’re only a handful of firms that live and breathe this stuff and are entirely focused on the sector. SenaHill is one of those firms.
The firm was founded by Neil DeSena (built Goldman Sachs’ industry-leading multi-asset trading system, REDI) and Justin Brownhill (founder and CEO of The Receivables Exchange, the first-to-market, real-time online institutional marketplace for the purchase and sale of working capital). SenaHill is a merchant bank which means it essentially provides 2 services: investment banking and principal investing. The firm doesn’t have outside limited partners, which means it invests its own partners’ capital.
Kyle Zasky, a partner at the firm, offers 3 tips to entrepreneurs making a go at building the next generation Goldman Sachs, BlackRock, or CNBC.
Find partners with real experience: Building a company in financial services comes with its own challenges. Zasky sees lots of entrepreneurs who have a sound product and strategy but just don’t quite understand how the finance industry works. “Founders need to do a lot of things right, including getting in front of the right partners,” Zasky told Tradestreaming. “In financial services, getting the right anchor clients is key.” Zasky should know — like all the partners at SenaHill, he’s an entrepreneur at heart. In 1995, at the age of 23, he launched his own electronic brokerage, EdgeTrade. 12 years later he sold his firm to Knight Capital.
So, Zasky and his SenaHill partners focus on their collective backgrounds when talking to young firms trying to make a dent in financial services. He encourages fintech startups to find investment partners who have large rolodexes and are willing to put in the hard work for their portfolio companies. “I almost feel like I have the same commitment to the 5 or 6 portfolio companies in my portfolio as I did to my own company when I was an entrepreneur,” he remarked.
Identify and hire the right people: Hiring people at early stage financial services firms is particularly hard: they’re in high demand and Zasky thinks most millennials would rather work at Facebook or Google than on Wall Street. Hiring is such an acute problem that SenaHill actually invested in a firm, untapt, that bills itself as something like an eHarmony for technologists and the finance companies looking to hire them. The firm’s platform takes programmers’ skills and via an algorithm, tries to match them to the skillsets required at hiring firms. When Zasky met the firm, he liked the business, liked the scalability, and because they were targeting fintech, he felt his firm had the connectivity to know the right people at banks and broker dealers. “You don’t have to work for Facebook to have a fulfilling career,” he remarked.
Work with a lifecycle investor: Every investor has his or her own model. Some are early stage and turn over the reins to a larger institutional investor later in a firm’s growth cycle. Others provide niche bridge financing. SenaHill’s Zasky says he gets in early and intends to continue supporting his portfolio companies down the road. That can come in the form of advising a portfolio company on a financing or putting more of his firm’s own money in. One SenaHill investment, Market Realist, appreciated this approach. The New York-based firm bills itself as the largest independent provider of ETF research along with comprehensive coverage of master limited partnerships, mutual funds, closed-end funds, real estate investment trusts, and 350 stocks of the S&P 500.
Michael Rodov, founder and CEO of the firm, said that he appreciated SenaHill’s MO. In his case, he looked to raise money from institutional investors shortly after completing a friends and family round for Market Realist. “When we had ups and downs, they’ve always been a great partner” he admitted. “When we had capital needs, SenaHill always stepped up to be a partner.”
For Rodov, this type of involvement was really important as he sought more investment as his firm grew. SenaHill also provided Market Realist with strategic partner introductions early on that helped launch the firm, which now services an audience of 800,000 investors. He’s been able to “lean heavily” on his investor, a firm he feels is respected widely. And that’s opened doors for him and Market Realist.
Photo credit: Engin Erdogan via Visualhunt / CC BY