by Nicole Lee Comments (4)

A Bitcoin Startup: The Best Exit Opportunity for Bankers Interested in Tech?

Bitcoin StartupDo you learn anything useful in investment banking?

Banks hype up the “transferable skill set,” but anyone who’s worked full-time in IB before might tell you something different:

No, compulsively fixing font sizes in PowerPoint and swapping in slide for last-minute fire drills do not count as “transferable skills.”

But there might be one area where your experience in the industry does give you an advantage.

I’m referring to financial technology (fintech) startups, and the latest, hottest area within fintech: Bitcoin.

Our interviewee today worked in investment banking and private equity before leaving to start BitX, a leading Bitcoin wallet, exchange, and merchant services provider.

Say hello to Marcus Swanepoel, who shares the full story of how he left his previous career in finance to change the world with Bitcoin:

Banking to Bitcoin

Q: Can you start by telling us exactly what your company does and how it’s different from other Bitcoin-related startups?

A: Sure. In short, we’re a ‘universal’ Bitcoin company, meaning we provide products and services that touch on multiple aspects of the Bitcoin ecosystem.

For example, we provide wallets for people to safely store their Bitcoin, exchanges where people can easily buy and sell, and integrations for other companies that want to accept Bitcoin.

We are aiming to become the top digital currency platform company in Southeast Asia and Africa, and we currently have offices in Singapore, Jakarta, and Cape Town.

Our main differentiators are our local knowledge and relationships, our partnership approach (we integrate with other companies to help build Bitcoin ecosystems), and also our focus on mobile in those regions – we think the growth potential and adoption rates will be much higher there.

Our app simplifies the process of buying and selling Bitcoin on exchanges, sending them to other people, and using them to pay for goods and services online.

Q: And what did you do before this?

A: I’m originally from South Africa, where I qualified as a Chartered Accountant (CA). Then I moved London, began working in Morgan Stanley’s Consumer Banking Group, and qualified as a CFA charterholder.

After that, I worked at 3i in fundraising and growth capital investing, and then went back to business school, completing my MBA at INSEAD in France and Singapore, along with an exchange at Wharton.

After graduation, I joined Standard Chartered’s Leveraged Finance team in Singapore and covered Southeast Asian markets such as Indonesia and Malaysia. I also spent some time in Africa working for the African LevFin team.

Q: I can understand your background in emerging markets, but how did you get interested in technology and cryptocurrencies?

A: I used to code and design a lot in high school, so I’ve always been interested in tech and media.

But I was also very interested in finance and emerging markets, which is why I worked in so many different groups and regions over time.

I ended up quitting my IB job in Singapore without a specific plan, other than wanting to work for or help build a tech startup.

I decided the best place for that was Silicon Valley, so I packed my bags and moved to Palo Alto for a few months.

I started researching various areas, including cryptocurrencies, and, like many others, quickly realized how disruptive they might be.

Around that time, a friend was visiting and mentioned that some of his friends were working on a cryptocurrency project.

I met up with them and found that we had very complementary skill sets and got along quite well, so I joined their team, and we started building the business together.

Q: So what exactly was this “cryptocurrency project?”

A: It was a project to build the first cryptocurrency system for a multinational bank.

This project came before Bitcoin was “hot” and before the press started writing about it all the time.

A lot of banks are interested in this space, but they are conservative and move very, very slowly.

After spending a lot of time working with a number of global banks on their Bitcoin strategies, we decided to focus more on building the consumer side of our business.

So our current goal is different, but the insights, relationships, and technology we gained from these early workings have been critical for the BitX everyone knows today.

Finance to Tech: Lucrative Exit, or Bubble Waiting to Burst?

Q: A lot of bankers are thinking about moving into technology or even starting tech companies.

What would you say to them?

A: You shouldn’t do it just because it’s “the thing to do.”

While we’re probably not looking at another 2001, there is definitely a tech bubble going on at the moment (2015). I’ve seen many people leave good jobs even when they do not have the personality or skill set to run a business.

One of the biggest obstacle for most bankers is that they’re not willing to fail – which will happen a lot if you ever start something.

Many finance professionals have had perfect GPAs and test scores, attended the top schools, and pursued opportunities where they knew upfront that they would likely be successful. But you have to get used to a lot more randomness with entrepreneurship.

If you’re from that background and you want to continue on that path, there is no reason to join an early-stage startup or to start your own.

In particular, if you’re more interested in the outcome (e.g., scoring big in an exit) than the process, just stay in banking. If you run the numbers, you’ll see that you’ll earn more on average.

You have to be passionate about the process of solving a problem for the startup path to make sense.

Also, some bankers don’t have much experience working with consumers, as opposed to large companies.

So if you’re planning to launch a consumer-facing startup, which is what most fintech companies are, you need to get close to your customers, many of whom come from different backgrounds than you.

Finally, it helps if your background has some logical relationship to whatever business you’re starting.

My path may seem random, but I had a lot of relevant experience:

  1. Experience with coding and design when I was younger.
  2. Finance experience in emerging markets such as Africa and Southeast Asia.
  3. Work on that initial cryptocurrency project.

So it’s not like I was quitting my finance job to start an import/export business for antique armor from the Middle Ages.

Q: You just mentioned how your particular experience was important, but how is investment banking experience, in general, relevant to cryptocurrency work?

A: You get a better handle on the regulatory aspects of banks, their current limitations, and how you might build a company to circumvent the traditional financial system.

I spend a lot of time speaking with government regulators and banks. Since I can point to my work history at banks, I have more credibility than someone who’s just out of university or someone from a different industry.

Making pitch books or Excel models isn’t directly relevant, but “brand name credibility” very much matters to conservative institutions.

My MBA at INSEAD was also helpful because many of my classmates started companies, so I’ve learned a lot from their successes and failures. That network has also been valuable in building our business and relationships across multiple countries.

Q: So let’s say that a former banker or consultant comes to you and wants to work at your company.

What qualities would you look for in him/her?

A: It depends on the type, stage, and industry of the startup; a late-stage, pre-IPO company will look for different things than a 1-year old business with ten employees.

Since we’re early-stage, we’re looking for people who are:

  1. Multidisciplinary – They’re comfortable wearing multiple hats, and they’re good at many tasks rather than being skilled at only one or two things.
  2. Passionate – How interested are they in cryptocurrency or consumer finance? Have they worked on related side projects? Are their hobbies and interests relevant?
  3. A Good Fit – Our team is quite diverse, and people have had experience in different countries and industries. So a banker or consultant who hasn’t had much experience interacting with a broad spectrum of people may not be the best fit.

On the developer side, the factors above still matter but we’re more concerned with coding ability and their familiarity with the technical underpinnings of cryptocurrencies.

A Day in the Life of a Former Banker

Q: Thanks for explaining all that.

Can you walk us through a typical day in your life?

A: As we’re speaking, we have a team of nine permanent, full-time staff, and four part-time staff.

I split my time between all areas: product, support, strategy, marketing, hiring, and fundraising.

So a standard day might look like this:

  • Morning: Review new features that users have suggested, and decide where they should be on our developers’ priority list.
  • Late Morning: Interview candidates for our business development / partnerships team.
  • Early Afternoon: Work on fundraising, send financial and KPI updates to existing investors, and contact new potential investors.
  • Late Afternoon: Review a new marketing campaign we’re running to boost user growth in Southeast Asia, and assess how well current campaigns have been performing.
  • Night: Take care of anything that didn’t get finished during the day, such as responses to pending emails, outstanding support tickets from technical or billing problems, and so on.

Q: You just mentioned the fundraising process, which is also an area where a finance background might be useful.

And you also just raised SGD 1 million in seed funding, so can you describe that process and how you made it happen?

A: Since we’re based in Singapore, it was significantly tougher to raise money than it would have been in Silicon Valley (SV).

Most of the ‘smart money’ going into cryptocurrencies is currently in SV; while many US VCs claim they’re “global,” they feel far more comfortable with US-based management teams or products and services that address the US market.

So while the liquidity is there, it’s not necessarily available to non-US strategies.

On the flipside, African and Asian VCs are very risk-averse, even though they’re in higher-risk regions. So they are not the first ones stepping up to fund cryptocurrency businesses, although that sentiment is starting to change.

In the end, we managed to bridge this gap and found high-quality investors. Pitch books and Excel models came in handy with this process!

Q: So would you recommend raising funds in Silicon Valley rather than Asia or Africa, even if your startup focuses on emerging markets?

A: I wouldn’t quite put it like that; you just have to realize that there are differences.

First, the risk appetite in Silicon Valley is higher. Investors are often willing to fund a business with a good idea and a team, even if they don’t have traction and/or a finished product.

They feel comfortable with that because many of these investments have become billion-dollar companies. They are also more likely to fund entrepreneurs who have failed previously, whereas in emerging markets failure is often seen as a negative.

Investors in Asia are more conservative, and they almost always want to see traction and revenue before they will fund a business.

There are some “sure things” like e-commerce in China and Indonesia, but you still need to demonstrate tangible progress first.

Second, the value-add from VCs will be different: Silicon Valley firms have a lot more operational expertise and often employ successful ex-entrepreneurs as investors.

Asian and other emerging market VCs are often ex-investment bankers or finance professionals turned VCs, so you won’t necessarily get as much operational know-how from them.

However, many of these investors do have strong networks and relationships in these local markets, which are extremely useful benefits that an SV-based VC cannot bring to the table.

Finally, you’ll often get a higher valuation in Silicon Valley than in Asia because Asian VCs haven’t seen many billion-dollar sales or IPOs.

So they assume the exit will be smaller, which limits the valuation they’re comfortable with (not that this should drive your decisions, but it is still important for many people).

That said, Asian VCs are becoming more aggressive and forward-thinking, so that may change in the future.

Some VCs we spoke with indicated they might invest if our management team were based in SV, but we felt it was better to stay close to our customers here in Singapore.

Q: A lot of people also have misconceptions about Bitcoin and digital currencies, which may make it harder to raise funds.

Can you walk us through what the most common misconceptions are?

A: A lot of people focus too much on Bitcoin’s price or believe that it is simply “another “type of currency.”

(We’re cryptocurrency-agnostic, but for now we focus on Bitcoin since it has the most traction and may be the most likely to succeed in the long-term.)

But cryptocurrency is exciting because of the technological aspect and the main problem it solves: double-spending.

Until just a few years ago, if I wanted to transfer any digital property (a domain name, shares, online money, etc.) to another person, I’d have to do it through an intermediary.

I couldn’t send it to you directly because of the risk that I would copy and paste it and send it to you and someone else at the same time.

This issue is called “double-spend,” and many banks and payment processing companies keep a database of transactions to prevent this. In exchange for this service, they charge a fee.

Bitcoin is a big, open, public ledger system that the entire world can see. There’s no need to have intermediaries because one ledger lists all the transactions, and everyone can see and agree on it. This setup means faster, safer, more transparent, and virtually free transacting.

Money is the first application, but the real power is that you can digitally transfer ownership of anything.

People won’t even necessarily need to know about the technology to take advantage of lower fees and faster processing time.

Eventually, it might become as easy as swiping a credit card, where you’re still using a local currency, but all the processing happens in the background via Bitcoin.

Finally, the other big misconception is that Bitcoin was “created out of thin air.”

If you read the original Bitcoin paper, however, you’ll realize that decades of work by top cryptographers and mathematicians came first. Like most scientific discoveries, it was “built on the shoulders of giants.”

Q: Thanks for explaining that one.

A lot of other Bitcoin startups do not focus on specific regions, so why are you targeting emerging markets?

A: There are opportunities in developed markets, but things are already quite efficient there: what adult in the US or UK does not have a credit card?

But in emerging markets, people don’t have credit cards or Paypal accounts and moving money around is incredibly inefficient.

Emerging markets also tend to “leapfrog” to the latest technology: in Africa, people skipped landlines and went straight to mobile phones; then they skipped computers and went straight to smartphones.

Something similar may happen with digital currencies in these countries as well.

Adoption is much easier when there’s no existing behavior to change!

Quitting Finance for Tech: Final Thoughts and Advice

Q: You’ve had a good run so far, and your startup seems to be doing quite well.

But how could current bankers or consultants in your position decide whether or not the startup world is for them?

A: It’s difficult to give a universal answer, but I would urge you to be careful if you’ve gotten interested because your friends are doing it or because it seems ‘cool.’

In my limited experience as a first-time entrepreneur, I’d say you have to be very self-driven and good at dealing with uncertainty, including extreme highs and lows.

It’s also quite important to be passionate about serving customers, and to be willing to get your hands dirty in the process.

Your odds of success are small, so unless you enjoy the process itself you shouldn’t even bother.

Q: Any other advice for others who are thinking of quitting their corporate jobs?

A: I would say, “Don’t listen too much to other peoples’ advice” because each person’s experience is different. You don’t necessarily want to emulate what other people have done since your strengths and weaknesses may be different.

When I quit, I made the call to start exploring other, entirely different alternatives, rather than taking a sabbatical. I could have done that, but my focus and drive wouldn’t have been the same, and I might have gone back to my old job afterward.

I honestly don’t think you can work for 12+ hours per day and also try to figure out what else you might want to pursue. Entrepreneurship is an all-in or nothing game.

So if you have the luxury and you’re sure you want to do something non-traditional (i.e., an industry where you won’t be penalized for quitting your old job), I recommend taking time off to reassess your goals.

If you haven’t spent foolishly on models/bottles, you should be able to afford a few months off from work to figure things out, so in that sense banking is very useful.

By closing one door, you force others to open up.

And new opportunities will find you more quickly once those new doors are open.

Q: Great! Thanks for your time.

A: My pleasure.

More About BitX:

About the Author

Nicole Lee has been serving as an Executive Career & Networking Coach for senior professionals in investment banking, asset management, private equity, and global Fortune 500 companies since 2012.

She has helped 500+ candidates land finance roles at firms such as Morgan Stanley, Macquarie Capital, and UBS.

You can connect with her here.

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Comments

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  1. Is there a FinTech Group at Investment Banks?

    What skills do FinTech VC/PE firms look for?

    Is Information Technology/programming skills useful to VC/PE FinTech firms?

    1. M&I - Nicole

      I don’t think there’s a “fintech” group in particular at banks.

      It depends on the role and the type of fintech firms you’re referring to. Fintech is a broad industry, and the industry may require various skills depending on what roles looking at.

      Yes they can potentially be useful.

      http://www.empirefintechconference.com/ may also be worthwhile to check out

  2. I’ve seen massive investment in Fintech post crisis.

    Do you think these start-ups will take a sizable chunk of business away from traditional banks (at least on the consumer side), or will the banks purchase/destroy these small companies?

    In the longer term, could they start chipping away at commercial & investment banking? Did we hit “peak wall street” in ’06? Is the traditional banking sector in a slow, secular decline?

    Will a career on the business side of new enterprise tech companies (Salesforce, Zenefits, Slack, etc.) be more lucrative than a career in investment banking going forward?

    1. Potentially yes to all of those, but the process will take a lot longer than expected. Banks probably won’t be able to purchase/destroy everything, and something will likely come along to make at least parts of the bank business model less appealing.

      It would be really tough to make a career on the business side of a tech startup more lucrative because that’s just not how salaries work… top engineers can get paid a huge amount, yes, but typically only the top sales people and execs will earn a huge amount on the business side. Whereas you see more “average” people making close to that range in finance.

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