The Surprising Spending Habits of FinTech Startups

It’s no secret that the world of venture capital is bustling, especially within the FinTech landscape. While some startups treat funding like a golden ticket to extravagance, others in the digital currency sector seem more like frugal savers who decided to keep the cash in a piggy bank. So, what gives? Where does all that cash go?

Record-Breaking Cash Flow: What’s It Being Spent On?

In 2014 alone, digital currency companies raked in a jaw-dropping US$315 million across various funding rounds. Fast forward to 2015, and that momentum shows no signs of stopping. Take Coinbase, for instance, which scored a cool US$75 million Series C funding round right off the bat in January. Meanwhile, 21, Inc. shattered records with its US$115 million raise in March. So essentially, it’s raining funds!

• Ethereum had a wild ride, raising US$18.5 million through its ICO in late 2014, only to run through their cash at a staggering rate of US$100,000 per day.
• QuadrigaCX raised over US$670,000 in April 2015, allowing them to expand their team and solidify partnerships.

Why Don’t They Go Big?

Despite the influx of cash, one might wonder why so few are embracing a ‘FunTech’ lifestyle with spiraling salaries and neon-lit offices. Gerald Cotten, CEO of QuadrigaCX, offers some perspective. In a conversation with us, he remarked, “Our funding has allowed us to increase the size of our team… But it hasn’t been about throwing it around for parties and luxurious amenities.” The reality? Startups like Quadriga often funnel funds into operational costs, licensing, and compliance, rather than extravagant perks.

Challenges of Compliance: The Hidden Costs

Don’t underestimate the impact of regulations. Obtaining a Money Services Business license is a must for any FinTech startup wishing to deal with customer funds, and that hefty investment in compliance can distract from the fun parts of running a business.

“The burden of regulations can be both complicated and expensive for companies operating in these financial roles,” – Gerald Cotten

A Financial Balancing Act

As funding becomes available, some companies find themselves pivoting to align more closely with investor interests. Circle is a prime example, recently receiving US$50 million while shifting focus to allow users to hold traditional currencies alongside bitcoin. Where fun times might thrive in the tech sector, FinTechs must grapple with serious business decisions and regulatory hurdles.

The Lean & Mean Teams of FinTech

Interestingly, the competitive one-upmanship prevalent in many Silicon Valley startups—best office selfies, fanciest perks—negatively impacts FinTech firms. Because of greater regulatory challenges and expenditures, these startups often adopt a more modest approach, focusing on core product development rather than luxurious lifestyles. This lean mindset may actually benefit them in the long run, teaching them the value of sustainability over flamboyance.

Conclusion

So, the next time you hear about a new digital currency startup, remember, that record-breaking capital isn’t necessarily funding lavish parties. These companies are laying the groundwork for a sustainable future in finance, one regulatory hurdle and well-placed dollar at a time.