A good strategic fund requires good focus. Where to focus can be driven by research, thesis development, and vision for the future. It should be shaped by the fund’s experience, the activity within the startup ecosystem, and the broader market conditions. The Alloy Alchemist Fund uses the same principles when establishing the focuses that shape its portfolio.
The largest influence on our approach is – unsurprisingly – the Alloy Labs Alliance. How and why it creates such a consistent, positive impact on our approach is much less obvious.
The 80+ banks that make up the Alloy Labs Alliance benefit by engaging with one another, solving their individual and collective needs and accelerating their digital transformation. They collaborate to address burning product questions, establish new operating policies and procedures, and build transcendental solutions. Because all types of bank personnel engage in the Alloy Labs community, a wide range of topics are actively discussed, from specific capabilities like cybersecurity, data analytics, and automation, to organization level topics like culture and business model. The discussions are member-led, ensuring that the conversations are relevant and impactful. The team behind Alloy Labs helps manage the conversations, connecting the dots between interaction points, tying discussions to timely events and important issues occurring across the market, and stewarding our members towards actionable outcomes.
In just the last quarter, Alloy Labs members participated in over 30 Centers of Excellence, 20 product development discussions, 10 Concept Lab sessions, 4 strategy workshops, 3 Alchemist Fund advisory board meetings, a meeting with regulators, and more.
The frequent, diverse, and deep engagement within the Alloy Labs Alliance affords us access to an unparalleled level of insights into the community and regional banking space. These insights shape how we build the strategy for the Alloy Alchemist Fund and how we make our investment decisions. The Alloy Labs community is an active participant in our diligence process, whether a solution is designed to have an immediate impact or a long-term focus. Our members eagerly participate, injecting their knowledge and expertise into our analysis and diligence frameworks.
Going from Insights to Impact
A great strategic fund requires more than a good focus; it necessitates great impact. Without it, you’re just a thematic investor with a bunch of bank LPs. The startups that take money from a strategic fund are doing so with expectations that the investor can deliver value beyond the capital deployed into the business. Typically, fintechs are seeking improved distribution and validation through brand association. They expect that fund to help drive more sales.
Anyone that has sold to a bank or purchased as part of a bank knows that the endeavor is not easy. And with the amount of scrutiny being placed on third party risk management by regulators, it’s only going to become more difficult for banks and fintechs to partner. Therefore, no one should expect that a fund’s relation to an LP will allow a portfolio company to bypass the bank’s sourcing and diligence processes. No investment in a fund – regardless of investment size, the bank’s importance to the fund, or vice versa – is enough to convince a bank’s operating team to abandon their policies and blindly partner with a startup.
So much of sales comes down to fit and timing. What are the current problems afflicting the bank? What are the problems that actually need to be solved right now? Which are worth “finding new budget” for? What is the bank’s tech stack? What is their willingness to go outside their primary tech providers to solve their problems? What is their willingness to go beyond their core customers and product offerings? These details are not necessary for a startup looking for a lead; but they are critical for those looking for qualified leads that have a better chance of converting to customers. Startups, your strategic investor must understand their LPs as much as they understand you in order to drive your desired impact.
The Alloy Labs Alliance ensures that the Alloy Alchemist Fund remains aligned to our banks’ strategic priorities and challenges. We are privy to an incomparable number and diversity of bank data points and have the team to synthesize them into actionable insights for the digital transformation of our members, the growth acceleration of our portfolio companies, and the financial returns to our LPs.
You can’t get more strategic than that.
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