Starting a business, particularly one that is predominantly digital, like a fintech or an e-commerce company, can be daunting. Fortunately, finance leaders at startups can look to a number of partners to help them navigate their growing enterprises, including their financial institution.
Biswarup Chatterjee, head of innovation and partnerships at Citi Services based in New York City, shares how startups can best use their financial partners.
What is the role of a bank partner in guiding startups’ financial management, particularly for organizations operating with a lean finance team?
No two startups are at the same stage of growth—they are all growing and evolving differently, so the role of the bank partner in guiding these organizations is nuanced by segment. For example, when we’re working with early-stage startups, the founders may have a good idea, but the engagement model can take months to build into something that’s ready to be onboarded into a bank. They might not have the resources or cash to take this on, so the bank may act as an advisor or an investor if it believes in the idea.
Often when we’re working with early-stage startups, we provide the support necessary for them to reach a stage where they can offer a product which we can integrate into our business, as well as into other financial institutions.
For more mature companies, the most important role that bank partners play is helping them navigate the bank’s business structure. All banks are structured differently, and it can be impossible for companies to navigate this complexity and find the right person or team without the institutional knowledge that a bank partner brings.
Even if a company is already working with three or four major institutions, each has its own unique process. Our role at Citi is to act as a steward, helping these companies maneuver the nuances of the banking model. Onboarding into a bank is challenging and often feels like a slow process, as banks operate within complex but necessary regulatory requirements, but we do bring critical expertise to companies—large and small, new and mature.
What capabilities should finance leaders at startups look for in their bank partner?
Finance leaders should view their bank partner as a strategic partner they can turn to as they look for ways to improve their businesses. For example, we spend a lot of time with CFOs at startups validating their ideas and products, and strengthening their business plans. We often see ideas coming from startups which are innovating and ground-breaking, but won’t scale easily, so we support CFOs and founders in building scalability and strength into their models.
Another big-ticket item that bank partners can offer to startups is their clients, network and relationship—which creates opportunities with other possible strategic partners and routes for growth. To point out, not all banks regularly sponsor innovation and invest in startups, like fintechs. It is important to evaluate a bank’s track record and align with senior decision-makers that support and nurture startups at all stages.
How have startups’ financial management priorities evolved in the last several months?
If we look at companies which were founded 20 years ago, they would have gone to their local community bank, started selling and collecting cash in their local geography, and deposited earnings in that community bank. Business was a brick-and-mortar operation tied to a specific place—it was very physical.
Now many startups—particularly fintechs and e-commerce companies—are starting digitally, jumping straight into a 24/7 global marketplace where money can be processed at all hours and suppliers can be paid 24/7 in multiple currencies. This is where we’ve seen a lot of fintechs and e-commerce companies needing our help to answer complex financial demands from these modern business models.
The other major shift in prioritization we’ve seen is fintechs needing to offer solutions to e-commerce businesses dealing with large volumes but small transaction values. For example, if you open a physical store, you deal with a certain number of transactions every day, but online, it’s much more unpredictable. Financial management complexity is impacting companies far earlier in their life cycles than would have been the case 20 years ago, and therefore they need a functioning CFO or treasurer in place much earlier.
They also must realize that venture investing is cyclical. Investment appetite can dry up quickly even in a favorable environment, therefore it’s crucial for a fintech to have a seasoned financial team to help manage liquidity availability from inception.
What strategies should startups consider in today’s macro environment?
The most important strategic consideration for startups when they’re introducing new products and services is what their differentiators are. What’s new about the product or service? How does it differentiate from what already exists? What are the new ways it can be delivered?
In a lot of cases, this mindset is very natural and the evolution of products and services mirrors societal trends, like the growth of mobile or banking the unbanked. Where we’ve seen clients having the most success is where there is natural demand for scale—like e-commerce companies experienced during the pandemic.
However, the challenge that businesses face is when they have a great idea—but they need to simultaneously create the product, and create demand and scale to market. Our recommendation is always to tackle one of these pillars at a time—either product, or demand and scale. Most consumers are only happy with one variable of change at a time, so we advise our clients to phase in their changes so at any moment in time, they only have one variable of change.
