How one fintech raised $435M while others cut back and lay off

Last month, Clear Street raised $435M at a $2B valuation. Since then, several people have asked me shades of the same question: How did this one fintech raise so much while so many others are cutting back and laying off?

While I haven’t been part of the Clear Street team in over a year, I did lead the company’s marketing function from the jump. I know what makes Clear Street different, and I’m happy to share that knowledge if it helps current and aspiring fintech founders.

I believe the company’s comparative strength is largely a function of five factors:

1. Long-term opportunity: Clear Street’s business is prime brokerage, but what it’s building is infrastructure — technology that simplifies complex, high-stakes trading. Any trading business, from individual traders to brokers to BlackRock, could use it to increase competitiveness while lowering costs.

2. Supply constraints: Before Clear Street, there had been no real entry into the prime brokerage market for a decade. Incumbents, primarily big banks, were pulling back on prime services following turbulence in 2008. Customers got squeezed. Frustration led customers/insiders to found Clear Street.

3. Adoption incentives: Prime brokerage customers need more than one prime. Why? They run sophisticated trading operations. Customers add primes to address those concerns and route trading among their primes to maximize profits.

4. Balance Fin and Tech: Clear Street hired client-facing roles from the prime industry. Clients were happy to see familiar faces. That decision allowed Clear Street to focus its time and technology resources on other areas (access, data). Those choices paid off in client satisfaction, advocacy, and revenue expansion.

5. Margin prioritization: At a time when startups chased growth at any cost, Clear Street focused on margin growth. Management prioritized investments in team productivity, positioning the company to deliver tech margins instead of (manual labor-heavy) bank margins.

Some of these factors may be hard to replicate, but that doesn't mean core ideas can’t be applied. Some thoughts:

1. Start with pain: I don’t think prime brokerage was a part of any VC’s thesis before 2020. Starting with obvious pain helped Clear Street beat the rush.

2. Fix the problem: Clear Street didn’t set out to reinvent or revolutionize. Instead, it fixed the core problems in the industry. (No one has budget for a revolution in 2023.)

3. Make room for fin and tech: Too often, fintechs define “tech” as the goal and “fin” as the anti-goal. Fintechs are better off drawing from both.

4. Actively manage learning costs: Know what your company needs to learn and when it makes sense to buy (or hire) your way down the learning curve.

5. Align innovation with value generation: Clear Street only innovated where value would be delivered to clients or returned to the company.

I hope that’s helpful. #fintech #startupadvice