Leaving Room at the Start-Up Pond’s Edge

“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime,” so the proverb about charity goes. Of course, in the real world—and certainly in the smaller space of technology investment—virtually nothing is free. And the situation begs a question that is entirely left out: How much does the fish, or the time spent teaching, cost?

It’s a question I came back to repeatedly while writing this month about financial technology start-ups, and the programs that many of the largest banks and institutions—from New York to Hong Kong to Tel Aviv—have now developed to usher new blood and ideas into the industry. Silicon Valley, if for no better reason than recruitment, is a method—or perhaps more accurately, a brand—that fintech can’t shy away from, with its angels and seeds and accelerators and other constructions that make traditional venture capital (VC) investment sound staid and slow, and so 1990s.

Advantages
Almost every source I spoke to for the piece tabbed the opportunity to teach start-ups to communicate as a tremendous advantage to these new mentorship and incubator programs—and having learned to do that myself as a financial journalist, there is no doubt about the challenge. Fintech has also benefited from coming to the party late, and has a range of options in terms of active investor participation and investment models to choose from. As one VC partner said, there are definitely better incubators out there than others, at this point.

There should also be little doubt that major firms—ultimately these start-ups’ potential clients—are just as interested in using the lingual currency of Silicon Valley to stay, or at least seem, hip to how young entrepreneurs and programming talent now see the world. In other words, this isn’t just an exercise in hand-holding, but indeed one of image building, and one that runs both ways.

That impetus alone guarantees the trend’s continued upswing. The bigger wonder is around whether any of this actually works on a practical level, and conversely, whether it has any crowding-out effect. Bank of America’s David Reilly pointed out the bank’s hit rate on newly engaged start-ups five years ago was in the low double-digits; now it’s at 17 percent. That sounds pretty good; however, remembering that the time period in question reaches back to the doldrums of 2008, perhaps more evidence is needed.

Cuff-linked Veneer
Then there are the reminders of the industry in question, itself. No one at New York’s Innovation Lab presentations this summer came dressed in a Mark Zuckerberg-approved sweatshirt; likewise, as Blackstone’s CTO Bill Murphy explained of the firm’s very successful Innovations investment program, he first needed buy-in from CFO Laurence Tosi to get the thing rolling. Publicly traded firms have boards and shareholders to answer to, after all. They move slowly because their technology stack is more “estate” than “garage.” And asking finance to give its cuff-linked veneer a lift is probably a fool’s errand, akin to reversing the laws of gravity.

Not that cold water should be poured over the whole idea. In fact, the more brought to the pond and taught to fish, the better for the industry and especially for the buy side, which—other than a few leading shops like Blackstone—doesn’t have the opportunity, or in many cases even the means, to be mentoring or investing in a new vendor, but could use some fresh options just the same.

Let’s just make sure there’s room somewhere at the water’s edge for the one who wasn’t invited with the group at all. His—or her—bait might not be flashy or innately collaborative, but it could be more effective.