An investment fund partner explains how to tell if a fintech is going to be successful

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Rajeev Gupta, a former investment banker who had his own successful startup, Geckolife, approaches each investment the same way, in a series of stages.

He’s now a partner at Alium Capital, a technology-focused crossover investment fund looking after sophisticated investors wanting to get in on smaller, high potential projects overlooked by the big players.

Alium Capital recently closed a couple of key investments in local Sydney fintech startups. In Australia, fintech is mostly driven by local companies, with 512 Australian and 67 offshore companies operating locally, according to analysis by KPMG.

One of Alium’s investments is Stockspot, a robo-adviser fund manager founded by Chris Brycki, a former UBS and BlueLake Partners portfolio manager.

The process to decide whether to invest is multi-faceted.

“You have to absolutely start with phase one,” Gupta told Business Insider. “Phase one is, you must understand the individual, their demeanor, their leadership capability and their ability to grow a business.”

For Stockspot, he met Brycki for the first time last year and was astounded at his level of confidence, his maturity and his ability to control without upsetting anyone.

At that first meeting, Brycki quietly answered all questions. If he didn’t immediately reply, he acknowledged the question and said he’d get back to that shortly.

Gupta thought Brycki handled himself well.

“It shows he’s got clarity of thought,” says Gupta.

“We look for that in every investment we make. The individual must have clarity of thought and be orderly.

“If you are going to build — and we believe strongly that Chris will build a multi-billion-dollar business, he will probably have a few hundred, if not a few thousand people — you need someone who’s always in control without being arrogant.”

The second element for investment is technology: understanding the product being built, who’s responsible, and how scalable it is.

For Stockspot, Gupta spent a day in the Stockspot offices, sitting in on meetings, seeing the team face-to-face, asking questions, studying the development plan.

He told Brycki: “I want to come in, I want to spend a couple of hours with the devs (development team), I want to go through the architectural plan.”

Gupta believes it’s important to see a startup using the right tools to build a product and to see who has responsibility for which elements.

He observed Brycki start one meeting and then leave.

“He lets people be autonomous,” Gupta says. “The developers and the product manager were in there debating but Chris didn’t need to be there because he’s empowered them. I felt as though there was a quite good chemistry between each of the people working on the product, and the people that are in product management or the sales side.”

The third phase for Gupta, and his two partners, is to talk to customers.

“We spoke to a few of their existing customers, with regards to what they liked about the product,” he says.

“We went and saw two accounting firms, and discussed with them what was the benefit of using Stockspot and vis-à-vis other products.”

They asked: “Has it improved your life and, if so, would you continue to use it and by how much more, on a magnitude, could you add to the business?”

And they went online looking for reviews, on pages 10, 11 and 12 of the Google search results.

“We found that it was reasonably positive,” says Gupta. “There were one or two that were negative, from an onboarding standpoint; but largely they were positive, four to five star reviews.”

The final piece is to look at the market. Will it sell?

Globally, there’s been a huge shift to index funds in recent years and Stockspot has the inside running to benefit from the trend.

“Then you look at the financials and start modeling,” Gupta says. “You model what you think the business will do from an AUM (assets under management) standpoint, month to month. Then you have a three-year view and in five years, this is what the AUM may be. Then you work out an acceptable cost structure and then you work out how potentially profitable this could be.”

Most pitches for investment can be dismissed in half an hour or so.

With Stockspot, the underlying demand is there. Every month, money’s going into super, people are retiring and more and more people need to work out where to put their money.

And Stockspot offers a fund with lower fees, between 0.5% and 0.79%, when others can be 1% to 2%.

“It’s a business that just seems to have tailwinds, run by a good guy with good technology,” Gupta says.

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