Our VC told us they won't follow for Series A. At the worst moment

[AnhTho_FR]

Ten months ago, after attending YC, my co-founder and I decided to throw our product in the trash and start a new idea.

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/

[searchableguy]

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.

[AnhTho_FR]

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?

[bckr]

Thanks for contributing to reduce survivorship bias in the startup space and for being very vulnerable.

[AnhTho_FR]

Appreciate the comment!

[mynegation]

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?

[PaywallBuster]

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

[biasedestimate]

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.

[uup]

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.

[AnhTho_FR]

Not sure what you mean by "professional" founders? VCs?

[arolihas]

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.

[fabiandesimone]

Link: https://sifted.eu/articles/startup-pivot-part-2/

[brendagumo]

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…

[ivanmontillam]

There's an article where they explain it: Why billing systems are a nightmare for engineers[0]

--

[0]: https://www.getlago.com/blog/why-billing-systems-are-a-night...

[O__________O]

>> 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?

[atak1]

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.

[300bps]

we were not the right team for Web3

I commend you on your foresight for this decision.

[Rafsark]

I do think most web3 founders are newbies, but somehow you need to be very passionate about the space...

[AnhTho_FR]

Yup it requires an unwavering belief, not just a 'spark of curiosity' x opportunistic, which was our case.

[mahmoudimus]

Thank you for sharing this. Very tough situation for you and your team.

[asim]

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?

[breck]

Are you raising any more money? If so please send me wire instructions [email protected]

[icedchai]

I'm curious. What was your original idea that you trashed?

[orliesaurus]

Ok im curious, how much cash do you have in the bank left?

[AnhTho_FR]

Can't share yet but enough to start a new product with an 8-people team!

[gnicholas]

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.

[xwowsersx]

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.