When it comes to fintech, prioritizing acquisitions is a sound strategy — but only when the old and the new technology integrate seamlessly. If the acquisition leaves data sitting in silos, makes maintenance more complex, or causes innovation to grind to a halt, it’s only a subtraction, not an addition.
This is key for venture capitalists to keep in mind as they search for new tools to combine with existing fintech platforms. Companies with suite-based solutions are receiving a lot of attention from investors lately. South African startup Yoco just raised $16 million to augment its services aimed at small businesses. And Indian B2B e-commerce portal Udaan just garnered $225 million in Series C venture capital to expand its line of services.
That said, a suite is an asset only when the constituent parts cooperate. When they don’t, it requires a hefty investment in tech fixes instead of revenue-generating opportunities. Consequently, the acquisition strategy that was designed to spur growth does just the opposite.
Getting to the Root of the Matter
Whether two solutions can integrate is critical to explore before embarking on a journey to acquisition. The challenge is that the answer is not always obvious, and making this determination often means peeling back the layers of each solution to determine where you can begin the integration process. Worse, even with careful analysis, unexpected back-end issues can throw the integration off track.
In this context, an acquisition strategy looks incredibly risky — and it should. Acquisitions are complicated at best and disastrous at worst. But the right acquisition can also deliver incredible returns, and getting to that point is not impossible. In my experience, the most effective evaluation focuses on these three features:
1. Technical Flexibility
Integrations force tech staff members to adapt. They have to step outside their current capabilities to engage with new technologies and answer complex questions. Some teams are unable to adapt, which only draws out the integration process while delivering underwhelming results. Other teams lack technical experts with financial expertise or experience designing large systems, which makes integration similarly difficult. Talent shortages are a problem throughout fintech, and they become quickly apparent when trying to execute a seamless acquisition.
2. A Business-Minded Tech Leader
It is absolutely possible to integrate two technologies and end up with a lesser product. Integration is a technical problem, but it’s fundamentally about making a product better and more appealing to users. If tech teams are led by someone who is great at code but can’t drive revenue, he or she will probably find a way to push the integration through. However, it probably won’t reflect the needs of the user or the business. In contrast, the fintech startup Robinhood pursued a business-first strategy, which helped it to double its user base in 12 months and lay the groundwork for an IPO. Tech must serve the business, not the other way around.
3. A Solid Foundation
Integration problems may not be immediately apparent. Things could appear to work perfectly on the surface. Problems tend to arise once the company begins to scale upward. It’s important to think of integrations as part of the foundation of the company, not insignificant add-ons. The only way for fintech companies to succeed is by captivating users and maximizing revenue. Without a solid, stable, and scalable foundation, that is impossible to do, so make sure that any acquisition makes sense for the long term.
Acquisitions aren’t about getting bigger; they’re about getting better. When an acquisition doesn’t fit with the technology or the company, it’s both a waste of money and a self-imposed obstacle. Finding companies that can seamlessly integrate new offerings into their existing tech infrastructures requires an extra investment of time and money — but it’s more than worth it.