First steps to launch a FinTech startup
FinTech startups have become a perfect choice for entrepreneurs who want to showcase a new way of dealing with finance based on the advantages of digital progress.

AppLaw offers you to look at 3 first steps you need to take to launch your FinTech company and get enough money to join the race with the others.

*Reading time: ~ 6 minutes
Choosing a jurisdiction
FinTech regulation still has a lot to do to keep up with technological progress. It also varies from country to country: jurisdictions with fewer startups and lower tech business presence try to adopt foreign regulations.
Though it can take them years to provide decent legal background to attract the required number of startups to drive the market and influence the development of legislation.

So it is better to choose a jurisdiction with detailed regulations for your startup. Though it means more rules to abide by, such countries also can provide you with better infrastructure and certain benefits to launching your FinTech business.
The United States has become one of the top choices for startups, attracting entrepreneurs from all over the world. Despite housing roughly the third of all global FinTech businesses, it still has not presented federal legislation to govern the FinTech sphere.

So you will need to follow the regulations of the specific state you choose to run your business in, along with the federal financial legislation. 

While The United States is famous for its strong traditional financial sector, it should not surprise you that classical banks here do not miss an opportunity to try their luck in FinTech. 

By successfully launching a few digital banks and using new technologies to improve the assessment of clients to issue credit cards, JPMorgan, Goldman Sachs, and likes of them show their willingness for competition.
The most popular states by the number of opened startups are California (thanks to the Silicon Valley), North Carolina, Minnesota, New York, and Texas.
The United Kingdom
The UK was one of the pioneers in launching open banking in early 2018, which allowed it to design an extensive regulatory basis, attract over $130 billion in investments and draw the attention of major international blockchain projects.

Following the Covid-2019 crisis, the UK developed a series of state-backed loans and certain benefits which enables you to speed up launching a FinTech startup. 
State financial regulators and major banks also offer a wide range of projects and hubs to trial innovative business ideas.
Lithuania is considered the largest core of the European FinTech industry, especially thanks to Brexit, which led a lot of UK-based businesses and startups here. 

With the help of the Bank of Lithuania, the government launched a regulatory sandbox allowing FinTech companies to develop safer blockchain and payment services. 
Startups here will also benefit from various tax incentive schemes if they plan to stay in the country.
Being the house of over 750 businesses in FinTech, Singapore is the perfect place if you want to start your tech startup in Southeastern Asia. 

Apart from a vast number of various grants, loans, and assistance programs for startups in FinTech, the country developed a special corporate structure to be used by investors and funds. It encourages them to stay in Singapore and accumulate money in the locally created tech companies.
The legislation here regulates nearly all areas in FinTech, including cryptocurrency. 
So it is up to you:

  • to choose a large country with a lot of classical financial institutions going toe-to-toe with their FinTech competitors

  • or pick a smaller jurisdiction with a growing pool of startups and developing infrastructure.
The second step to launching a FinTech startup is looking for money.
It might be needed for two purposes:
  • investing in the company to provide the whole process of incorporation and the first periods of its run;
  • raising funds for further lending.

The possibility to raise funds from certain sources varies, as it can include both private individuals and legal entities, mainly hedge funds and venture capital companies. 

There is also an option that has been trending for some years now, which can give you a huge boost at the start. It requires acquiring a ready-made business or merging it with an existing company that already has all the licenses and stuff. 

Another opportunity for startup enthusiasts can be a state initiative. Especially following the COVID-19 crisis, certain countries, including the USA, developed programs that attract young businesses with tax incentive schemes, benefits for foreign startup owners, and simplified licensing. 
Partnership agreement
In all these cases, you will need a thorough check of any partnership and financial terms you sign up for, in order to protect yourself.
All your negotiations should be put in writing, usually in a form of a partnership agreement.

By taking money from investors you will obviously have to provide something in return, usually a stake in your business or a permanent share of your profits. Otherwise, they will ask you to return the money with a bonus after some time.

Our advice will be to prepare a financial and investment plan. It should feature:
all the money you need to attract,
which purposes you plan to cover with it,
your expected earnings,
and how much of your stake you are willing to give for it.
Moreover, this plan will be an added advantage for you in your future negotiations with your investors and partners. 

Another important aspect you need to consider in your agreement is share dilution. You should set the rules on whether your future investment partners can receive their part of the stake only from what is yours, or all the shares of all your partners can shrink if a massive investor comes into play with a huge payload.
The first option should encourage your initial investors who will receive a substantial part of your business and won't be afraid that their stake can be reduced. Therefore, you will get enough money to go for a quantum leap at the very beginning.
On the contrary, the second option provides for future investors to compete with their money to have a bigger piece of the cake. Though you won't get a lot of money at the start, this alternative will be useful if you plan to attract investments gradually while your FinTech business keeps growing.
There is also a third option with a mixed approach, which is often used if you create a startup together with someone else. It allows you and your partners to fix the number of shares needed to cast a vote on important issues that can't be diluted (often 50% + 1 share), while another part can be used to offer to your outside investors.
So this is only the beginning of your journey as a FinTech enthusiast, and you already need to make a lot of important decisions.
Let us help you and guide you through the first steps of launching your company. We can take on all the legal stuff and protect your interests during the negotiation with investors and state authorities to make sure you have enough to start.
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