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We followed an Australian fintech startup for 6 months -- it was pain, gains, late nights and burgers

Alexey Feigin, Jordan Rastrick and James Jansson. Image: Supplied

(Chris Pash joined the advisory board of Tapview, a fintech micropayment startup, for this article).

Startups are an exercise in modern dreaming.

Many of them are built on a belief that a disruptive business model will improve the world and make wealthy those who drive change.

It’s about yearning to execute on idea so cool, new and compelling that it sparks an unstoppable flow of cash for a company that eventually lists on the New York Stock Exchange.

Feel the applause and admiration. Take a bow.

And, of course, all involved become billionaires.

Thinking about it is fun. Making it a reality is where the pain comes in.

The first step on the road is having a good idea, of which there are many that don’t make the transformation from pure thought to actual product.

Take the one you think will work and build it into something called a “minimum viable product”. Then you have something to show investors, a chance to get funding, to build a customer base and have something lasting, something you can hold in your hand and say: look, it’s real.

If you don’t have money, or a tradeable asset other than a decent laptop, then you have to learn the art of what’s known as bootstrapping. That means putting in your own meagre flow of cash and mix in fresh sweat from your labours.

Three Sydney friends — James Jansson, Alexey Feigin, Jordan Rastrick — couldn’t afford an office when they started in late 2015.

“We don’t have capital, we don’t own homes, we don’t have big savings accounts, or big super accounts,” says Jansson.

“We have nothing really. We can’t dip into the equity in our home loans. We rent.”

When you don’t have cash

They came up with a unique, and free, solution.

While they had no cash, they had friends and supporters including at one of the big four professional services firm (EY, KPMG, Deloitte, PwC).

These firms have lot of meeting spaces and it’s not unusual for teams to come and go. Some drop in from interstate or overseas offices and some are outside consultants brought in for specific projects.

The friend booked one of these meeting rooms for several months, telling support staff they had a project on the go. Three outside consultants would be on the team.

James Jansson, who became the CEO of the startup, Tapview, won’t say which of the big four, because the friend still works there.

“We tried to say no to the coffee because we felt guilty … but they have very nice coffee,” he says.

The three enjoyed the upmarket work space for three months but leaving their squatter’s office unattended to do pitches on the emerging business became a risk.

Whiteboard planning. James Jansson at Magnetic Island. Image: Supplied.

The staff who looked after the meetings rooms called Jansson’s contact in the company, saying: “Your consultants aren’t doing their job. They haven’t been here for a few hours.”

Jansson says: “We bootstrapped a lot. Our first office was a friend’s parent’s holiday house at Magnetic Island. So we were hanging out with the rich and famous on Magnetic Island while we programmed for three weeks.”

The idea

Jansson, Feigin and Rastrick didn’t start with an idea for a business but rather a desire for their own startup. The product came later.

They all met at university.

“We’d been talking about a startup for ages but we didn’t have the opportunity,” says Jansson. “Then the stars aligned.”

Jansson finished his PhD in maths and wanted to leave his job as a research assistant at UNSW. Feigin was finishing off his PhD in capital markets.

Rastrick said: “James, you are going to quit your job. Alex, you are going to finish your PhD. And then we are going to do this startup.”

They decided to do a session pitching ideas to each other in Jansson’s lounge room at his Randwick apartment in Sydney’s east.

Blockchain featured prominently.

Jordan brought an idea which made bitcoins resistant to price fluctuations, a process which effectively created loans within the system.

Alex had an idea for customer reviews using a phone app.

But in the end they chose a micropayment system, designed for publishers to sell one article at a time for small amounts, such as 10 cents, or whatever the publisher decided.

“We chose this one because it is really scalable,” says Jansson.

“If you just take a clip of each transaction, it doesn’t matter what the transaction is. Financial institutions do this all the time. The clip is quite small.

“It was simple to implement and the Bitcoin ideas were just too hard. Bitcoin has a limit on the number of transactions per second. The technical solutions. How to get people into Bitcoin. Hard to secure. It’s hard from a user perspective.

“So we decided to create a layer for media companies, to get people to pay with micropayments.”

Normally, taking 10 cents to view an article isn’t cost effective because a bank will charge too much to collect the money. However, micropayments are aggregated until a larger amount is combined across a site, making the fees more manageable.

The offer

They first called it Zipsub. But later changed the name to Tapview to avoid potential conflict with trademarks and to make the name more memorable.

The three founders went to work building a product. At the same time, they started looking for investors, someone who would tip in enough to get some scale.

Jansson has experience pitching idea as the founder and leader of what became the Science Party at the last federal election.

Here’s a slide from Jansson’s Tapview pitch deck:

He started doing the rounds of startup events, trying to network into an investor or a fund specialising in early stage funding.

One afternoon, he was at at the Australian Stock Exchange during a graduate award event for a startup program.

After the event, he was talking in the foyer to another early stage entrepreneur, Tim Lea, who said: “You should be going out and working the room.”

So he did and he met Simran Gambhir who did the programming for the first Sydney Morning Herald website.

“That’s really interesting,” said Jansson. “I’m doing a startup for micropayments for media.”

And so he pitched and Gambhir asked detailed questions.

Gambhir immediately saw the benefit for mainstream publishers.

He also saw an immense opportunity to help bloggers/videographers and other content creators monetise their output and start to move away from the sponsored content/advertising model.

“That’s sounds very good,” Gambhir told Jansson. “I do consultancy work for H2 Ventures and there’s space in our accelerator program.”

Jansson was introduced to Toby Heap, a founding partner in H2 Ventures, which specialises in early stage fintechs.

The three founders met Heap in the kitchen at Stone & Chalk, the not-for-profit fintech hub in the AMP building on Bridge Street in Sydney.

Networking. James Jansson. Image: Supplied

“I explained the idea to him in 10 minutes and he was on board,” says Jansson.

Toby Heap liked what he saw — both the people and the product.

Heap told Business Insider: “The team stood out for their intelligence, passion, hustle and quirkiness. It’s not often you are pitched by founders who have also started a political party in their spare time.”

And he liked that Tapview solves a real problem in the media industry with an elegant solution.

“We share the founders’ passion for quality journalism and were keen to support their attempts to improve the business model of the media industry,” says Heap.

To Heap, the founders came across as smart with a bias to action.

H2 invests early in the life-cycle of startups, those with products still to have training wheels attached. The people are key. Have they what it takes to build a business?

The people, and an early investment

“If the team are not great then even the best idea in the world will fail,” says Heap.

“Of course we also look for a business concept that has great potential, particularly in terms of a large defensible market, but that is not as important as the team because a great team will sort any imperfections in the business model,” says Heap.

Heap offered a $100,000 investment in exchange for 10% of Tapview.

The founders took about three weeks to get back to Heap. They worried that the investment wouldn’t get them far enough and run out before they could make real progress.

Jansson: “We didn’t think that level of funding was enough money to expand which is what we really needed to do. It was enough to keep us alive on very, very low salaries but not enough to expand. It felt like we were selling ourselves a little short.”

In the end they decided that the H2 deal was a good first step. Once you’ve raised funding, people know that someone else has already done the due diligence and they might be more likely to invest.

The pitch

You can build the world’s smartest solution, using the the best brains, but if you can’t get the idea across, then the startup will stall.

Jansson got so good pitching that he started winning competitions.

Here he is in Hong Kong at the Next Money Fintech finals after winning the local Australian heat:

It’s all about breaking down the idea and making it simple to grasp and then adding excitement and a big dash of future prospects.

“It really comes down to making it an absolute no-brainer,” says Jansson.

“When people look at a startup they’re thinking: who are you, why should I use you?

“But if I say: I can strip all this complexity out your organisation or I can cut all of these costs and there’s no risk to you.”

The three founders took their desks at the fintech hub Stone & Chalk in April 2016.

The Tapview founders graduating from the H2 accelerator program.

The move was good for the founders in terms of networking. Early on they met Danielle Szetho who was working at Fairfax Media developing the company’s banking and finance industry strategy.

She invited them to a hackathon, a coding competition, at Fairfax.

They didn’t win the hackathon itself, going close to picking up the people’s choice award, but they made good connections at Fairfax.

And Tapview was soon working on getting a payment system working on the websites of two of Fairfax’s regional newspapers.

Details are commercial in confidence, but the Milton-Ulladulla Times and the Bay Post-Moruya Examiner began charging readers a nominal amount to access content.

Tapview also created a subscription option, at $1 a week. The whole system was white-labelled, looking seamlessly like a Fairfax product. And local readers did sign up. The numbers are confidential but significant.

Later in 2016, they invited Szetho, who had moved on to become CEO of Fintech Australia, to join an advisory board, bolstering their depth of experience.

An almost altruistic innocence

Jansson is 32, or about the right age for a general startup, but young for a fintech founder. They generally tend to be older with a financial services background. A study by EY put the average age of a fintech founder at 41.

What Szetho liked about the three founders is that they care. Their hearts and souls, their money and their lives, are in the business.

“They passionately believe,” says Szetho. “There is a beautiful, almost altruistic, innocence I find in James (Jansson). I find it really refreshing.”

On the business itself, she likes that it is expandable. Put a payment button on one site, or one million.

“It goes across not just the large media organisations but also some of the smaller ones, the little blogs,” she told Business Insider.

She sees Tapview as not pure fintech but something at the intersection of fintech and mediatech.

James Jansson winning next money pitch. Image: Supplied

“They are a marketplace,” she says.

“They are getting some really good connections to build up the supply side at the moment. There’s lots of conversations happening with different media organisations which are every promising.

“But the next bit is how are they growing to balance that with a really good campaign to acquire customers? That’s what will make it a compelling proposition for publishers to adopt them.”

Valuing a startup

The three founders also met Bill Kemmery, who has long experience in investor relations. He was at Stone & Chalk building Fundexa, a platform for companies and investors to connect with clients, including the ASX and 200 listed companies and startups.

Kemmery pushed the trio to challenge their assumptions, running them through options for raising capital.

The founders were looking at a valuation of $5 million and seeking an investor to put in $1 million for 20% of the company.

Valuations are always tricky for a startup. For an established business with customers and revenue, it’s easy. But a startup is about future promise, what it can become, not what it already is.

The founders had a $100,000 investment from H2. In theory, that was an easy valuation calculation at $1 million (10% = $100,000, therefore 100% = $1 million).

But that was before Tapview had a contract with a publisher and the product itself had been enhanced and improved.

Kemmery told them to go away and come back telling him why the valuation, using their same calculations, couldn’t be $10 million.

They came back the next day even more convinced that the $5 million valuation was appropriate.

Jansson: “The next day I gave Bill (Kemmery) a rundown of what our previous valuation was ($1 million in April), and all of the things that had changed since, including establishing a relationship with a major publisher and adding subscriptions to the platform.”

Kemmery also ran them through the hazard of selling down, too much, too early.

“If you do not need all of the funding tomorrow, raise a smaller amount today and then complete the remainder of the raise at a higher valuation sometime over the next 12-18 months,” Kemmery said.

He made the point that doing two small rounds, rather than one large raising, would more than likely mean selling down a smaller part of the company, meaning a larger stake for the founders.

Jansson shook his head. “Quite frankly, Bill, that scares me,” he said. “I would have raised the first $500,000 and then be working flatout to find the next lot of money. I’d rather do it in one lot and have a clear way to build the business.”

Long days and nights

In September 2016, Tapview appointed Ross McCaul, a former director of commercial licensing at the Copyright Agency with extensive contact with publishers in Australia, as head of sales. It’s a part-time gig, designed to take some pressure of the founders in terms of business development and to accelerate building a pipeline of prospects for the product.

McCaul was impressed with the product and the founders.

“Tapview takes pay per view, which is not a new idea, and gives it a seamless one-click miracle tech makeover underpinned by the proposition ‘only pay for what you actually want from any premium source’,” McCaul told Business Insider.

“Publishers get additional revenue from those who didn’t previously pay and users get account functionality to multiple publishers sites not just one.

“Also the guys who started Tapview … have a thoroughbred startup pedigree with backgrounds in computer science and PhDs in Maths and Capital Markets. They’re friends and have a natural focus and the right energy for building a business.”

Meanwhile, Bill Kemmery organised an introduction with the CEO of an ASX-listed company, on top of building leads with funds and high net worth individuals.

That CEO listened to Jansson’s pitch and came to the second meeting with his IT director and head of sales. Tapview and the company are in ongoing talks.

The days became one long round of pitching to potential investors, interspersed with coding and building the product.

The ability to keep putting one foot in front of another, despite setbacks, tiredness and knock backs, is an important skill. It’s that never-give-up, push-through-the-pain that Jansson found within himself when he started cross country running at school.

Emotions can spike when the body hits a low ebb.

“If you let things get to you and there’s a massive blowup, you’re going to be exhausted,” says Jansson.

Go into Stone & Chalk on a weekend and count heads. Among them will be the Tapview three. They work through the night, sending emails at odds times, such as 3 am.

“It’s hard with so little money,” says Jansson.

“We’re doing too much of the work ourselves.” It would be good to hire a programmer or two but they would cost at least $80,000.

“If we had the right person we’d just say build this and they’d be finished at the end of the week and then they’d be like, so what’s next?.

“Whereas we’re sitting around the three of us trying to put things together. And on top of that Alex has been real sick in the last week so it’s been down to just myself and Jordan.”

McDonald’s four nights a week

Jansson is eating McDonald’s four nights a week, mostly double quarter pounders with chips and the no sugar drink option. Sometimes he has three burgers. He swears he loses weight on this diet

“But when you say what you eat to people they think that you’re going to get massively obese,” he says.

“In reality, the whole time I’ve been doing this startup I’ve been 71 kilos. Went up to 72, went down to 70. That’s my range.”

The Google fitness app on his phone tells him he’s walking 50 minutes a day. Nothing organised, just incidental exercise as he goes about his day.

Support networks

Jansson’s desk. Image: Supplied

The startup life is a bit like running a marathon without knowing your next water stop.

Having a stable relationship — girlfriend, boyfriend, a partner, a supportive parent, someone who will look after you no matter what — is important.

That way, you know you’re not going to end up on the street if things go bad. There will always be someone there to feed you. Back-up.

“I’ve been in situations previously where I’ve got no money in my bank account and that’s tough, massively motivating,” says Jansson.

“Most people don’t appreciate how important it is to have stable relationships around you.

“I think it’s probably good enough for someone to think it’s okay for you to waste your time for a couple of years.

“You don’t want someone telling you constantly that you need to get a real job because that would mean you’re not just justifying it to yourself, you’re justifying it to someone else.”

Cash is tight

Over December 2016 and January 2017, a NSW scheme gave them funding to build deeper analytics in the platform.

They’ve also been working the tax breaks from the federal government’s research and development scheme. This gives back some of the money spent, further stretching the cash component of the $100,000 from H2 Ventures.

By late February 2017, money is as tight as always but the founders did a friends and family raise, putting $50,000 in the bank.

That gave them a kick along, but still two of the founders decided not take a salary from the business. More sweat, more long days. They keep adding value to the company — but is it enough?

The business in certainly worth more than last April when they first arrived at Stone & Chalk. They have the platform working on two news sites, delivering a subscription service, not just a single payment for an article button but a full solution which keeps growing each month in terms of readers and revenue.

“We’ve got more products, had more time to develop things,” says Jansson. “We’ve won more awards and created a new analytical platform.”

Valuations are arbitrary. It’s the potential that sells. And the quality of the founders. Will they make it? Have they got what it takes?

There will always be those who call bullshit. But the Tapview founders are getting good noises from the fintech community. How many have the head of the fintech industry association on the advisory board?

Those who succeed have to talk the vision, to stand out, turn listeners into believers, have more confidence than anyone in the room.

Up yourself, just a bit

Jansson says you want to make people feel like you’re in it to win. “You kind of have to be up yourself a little bit,” he says.

And it’s also about taking the hits, getting back up again and trying again.

Fintech is still a young sector in Australia. According to research by EY, there are about 350 fintech startups in Australia and two thirds of those are less than two years old. More than 40% don’t have any revenue.

Most of the startups, just like Tapview, are bootstrapping and lean, with just a handful of people. They, according to the EY research, are passionate and driven to create something better than the main players, the big banks and financial institutions.

“It requires immense commitment and a deep-seated belief in their offer, combined with confidence in their own ability and that of their team to commercialise it,” says the EY census of Australian fintechs.

Investment in fintech in Australia has grown fast. KPMG estimates that the sector has grown from a low base of $51 million of investment in 2012 to more than $600 million in 2016.

However, getting seed funding, attracting an investor willing to put in cash before the business has been established, is difficult. Getting capital for a startup with revenue and customers is easier.

“It’s harder to get early stage funding in Australia, not necessarily because there’s no seed capital available but because investors here find it hard to assess the value of ideas at early stages, and aren’t as willing to take risks,” says Danielle Szetho.

All night coding to meet a deadline. Image: Supplied

“I’ve heard some pretty terrible stories of investors imposing really quite unfriendly terms on early stage startups, which ultimately don’t help either party to succeed.”

A number of the well-known VC funds and angel investors in Australia are interested in fintech.

The latest Startup Muster report, the largest survey of the Australian startup ecosystem, shows Fintech as the top target industry for investors in 2016.

Fintech Australia is seeing startups looking to angels and early stage VCs in overseas markets, the CEO says.

“I’m also increasingly being contacted by overseas investor groups from the UK, South Korea, China, Singapore and the US,” Szetho says.

“They’re noticing the high quality of the startup talent here, and the industry is now starting to reach the point of maturity where startups can leverage these kinds of strategic investor networks to scale overseas.”

The funds and investors with cash tend to go for the startups with revenue already, making it difficult for very early fintech to get funding.

Ian Pollari, KPMG Australia’s head of banking, and the co-lead of global fintech for the advisory firm, says there’s a shortage of fintech startups which have moved beyond seed funding.

“This will slowly come as the initial rounds, the Seed and Series A rounds from one to two years ago, now move onto follow-on rounds, which are increasing in size, when customers and revenues start scaling,” Pollari told Business Insider.

“As a result, from a startup perspective, it is still generally challenging to get support for early funding rounds.”

Tapview is in the early stages of building customers and revenue. The product is working, has been enhanced, and has brought in contracts. Real business.

The founders are now seeking investors for $1 million, to be used to accelerate sales and to further enhance the product.

The potential local Australian universe of investors is large. An incomplete list put together by AirTree, a venture capital firm investing in Australian entrepreneurs, shows 150 venture capitalists and more than 190 angel investors.

James Jansson is well aware of how important getting the balance right is for the business, his fellow founders and their small band of backers.

“My job as the person who is in charge of fundraising is to get rejected by every single person except for one. If I get multiple offers, then I am asking too low, but no offers means I am too high.”

*This article was originally published on April 25, 2017.

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