Catalyst Fund launches remote due diligence guide for investors, highlights 3 fintech areas to aid COVID-19 recovery

Global inclusive tech accelerator Catalyst Fund today released its latest report (available for free here) detailing insights into remote due diligence best practices adopted by investors globally since the onset of COVID-19.

The report additionally illustrates three fintech product areas with the highest potential to support inclusive recovery and build resilience for vulnerable populations – insurtech, micro-savings and investment, and financial products for platform workers – with practical tips for investors to better assess startups in these areas.

The report compiles insights gleaned from the 75+ members of Catalyst Fund’s Circle of Investors, and critical input from three leading inclusive fintech investors  – Accion Venture Lab, Flourish Ventures, and Quona Capital – and  includes insider tips, key metrics investors should be looking for in fintech startups, and ways of adapting to instances in which face-to-face conversations and in-person observations of end users are no longer possible.  

Key insights and quotes from the report include:

• Effective remote due diligence for fintech startups should focus on evaluating four critical areas: team, product, market and financials

• While insurtech solutions in emerging markets are seeing a steady rise, nearly 25% of new initiatives fail to survive. Insurtech startups struggle most with customer acquisition, developing appropriate risk coverage, and executing seamless, cost-effective service delivery, so investors should look for key signals that startups are resolving these challenges. 
   
• “We are going towards a place where consumers better understand insurance and the utility of the product. Hopefully we’ll see a new breadth of insurance offerings that we haven’t even thought of – there are so many other things to insure.” – Ashley Lewis, Accion Venture Lab

• In spite of low savings and investment rates across most emerging markets, evidence shows that households respond to past shocks by increasing their savings. Successful startups in this space face three key challenges: building trust, retaining customers, and generating revenue. Innovative fintech startups are finding creative ways to overcome these challenges, and proven strategies include: blending tech and touch, allowing for instant verification, and leveraging behavioral insights. 
• “Savings and investments are a good use case to build financial education and awareness. Having savings can prevent someone from needing an expensive loan and prevent the need to make quick, uninformed decisions in a crowded lending market that may have detrimental effects when savings are low.” – Johan Bosini, Quona Capital
• Between 2018 and 2023, the digital gig economy is projected to grow by 123% to $455 billion, accelerated by COVID-19. Platform workers, however, lack access to basic financial services. Successful startups building financial tools designed for platform workers need to resolve three key issues: crafting tailored value propositions, leveraging alternative data and acquiring, and retaining workers. Investors can look for solutions that have been shown to work, like: asset leasing, wage advances, and embedded finance bundling.
• “The global gig economy consists of a vulnerable population because they are largely informal, and they don’t have access to the resources that formal workers do. There is an opportunity to offer smart financial services to this new, large category of workers.” – Efayomi Carr, Flourish Ventures.

Despite initial fears that investment would cease or dramatically slow at the onset of the pandemic, funding for fintech dropped by only 2% in 2020 relative to 2019. Fintech companies in Africa even saw an uptick in funding, as many benefited from accelerated digitization and the necessity for customers to perform transactions and access services online. Those offering services like digital asset exchange, digital payments, savings and wealth management reported growth of over 20% in the first half of 2020. 

“The growth of startups working in insurtech, micro-savings and investment, and financial products for platform workers signal the coming-of-age of a new generation of inclusive fintech products, and reflect urgency and demand among users for financial tools and services that can build financial resilience and health,” said Maelis Carraro, Managing Director, Catalyst Fund. “We created this guide to share what we and our community have learned over the last 12 months about remote due diligence and the next opportunity areas for inclusive fintech, as we look hopefully ahead toward the new normal, and continue to invest in founders with the potential for transformative impact.”

Download the report for free here.