Neil Patel

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In a recent podcast interview for DealMakers, Todd McDonald, Co-founder of R3, sat down to recount his journey from a bucolic childhood in Connecticut to becoming a key player in the world of fintech. He took us through his journey in the financial industry, transitioning from a trader in Wall Street to co-founding R3, a fintech startup at the forefront of enterprise distributed ledger technology (DLT).

Listen to the full podcast episode and review the transcript here.

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    From Wall Street to Startup

    Todd began his career in Wall Street, trading amidst a landscape rapidly transforming from smoke-filled rooms to computer-filled ones. After being thrown into the deep end during the Asian financial crisis, Todd’s career took him around the world, providing him with invaluable experience in the volatile world of finance. This knowledge would later prove instrumental in his transition into the fintech world.

    His shift from finance to technology was marked by two significant turning points: one, a growing interest in fintech and its potential applications to financial markets, and two, the increasing bureaucratization of the finance industry. The latter prompted Todd to seek new avenues where he could apply his knowledge of finance and his newfound interest in technology.

    Falling down the Blockchain Rabbit Hole

    The catalyst for Todd’s exploration of fintech was the stunning price chart of Bitcoin in 2013. Despite initial struggles to buy Bitcoin, his curiosity led him down the blockchain rabbit hole. Recognizing the potential of this underlying technology, Todd teamed up with his current business partner, David E. Rutter, to create R3, an enterprise DLT and services company.

    Starting R3 was a significant leap of faith, but their approach was unique. Rather than developing a product first, they began by identifying their customers and understanding their needs. They then collaborated with them to build a technology that could address those needs. This customer-first approach helped R3 secure early support from customers and investors alike.

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    Overcoming Growing Pains

    Transitioning from traditional finance to starting a technology company wasn’t without its challenges. With only eight employees initially, R3 had to build value for giant banking corporations. Nevertheless, their persistence, consistent theme, and good timing paid off. They developed Corda, a purpose-built DLT platform for regulated markets designed with privacy and scalability in mind.

    R3’s funding journey also had its bumps. They had to navigate a complex web of investors, including dozens of banks and other strategic investors. Despite challenges and obstacles, the company managed to raise over $100 million in their funding round, thanks to their strong relationships with key leaders in the banking industry and their unique approach to DLT for financial services.

    Fundraising: Challenges and Triumphs

    R3’s fundraising journey was a unique and eventful one, laced with challenges, but ultimately crowned with success. Unlike typical startups that seek capital first, R3’s initial approach was radically different. They asked potential investors, primarily banks, to pay a membership fee, betting that they could generate enough value for these banks to convert these fees into an investment round.

    Despite starting off as a bank consortium, R3’s goal was always to become a standalone software company. This balance proved to be a challenge to maintain as they attempted to rally their initial supporters for the long-term vision of R3.

    Getting to the starting point of their funding journey was strenuous, with a few close calls.. Notably, an in-process funding round almost fell apart when Goldman Sachs, a big name in the industry, considered pulling out. But thanks to the trust they’d built with their early supporters and investors, they managed to hold their funding round together.

    During this period, Todd highlighted the crucial role of long-term investors like SBI in Japan who helped bridge the gap to reach their funding closure. SBI’s supportive presence was instrumental during this challenging time.

    Ultimately, their fundraising round was successful, closing in May 2017 with a little over $107 million from 46 investors. Most of these investors were banks, but strategic investors such as Temasek and Intel Capital were also on board. They navigated this period with a mix of persistence, building strong relationships, and demonstrating the long-term value of R3 to their investors.

    Storytelling is everything which is something that Todd was able to master. Being able to capture the essence of what you are doing in 15 to 20 slides is the key. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here), where the most critical slides are highlighted.

    Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

    Despite the challenges, Todd views the fundraising journey as an essential part of R3’s evolution, galvanizing not only the company but also their future board. Today, R3 uses investor relations as part of their go-to-market strategy, ensuring their investors see the value their businesses derive from the R3 ecosystem. This approach, coupled with their long-term thinking and unique value proposition, played a significant role in R3’s successful fundraising journey.

    The Vision and the Road Ahead

    Today, R3 is a global company with around 350 employees and offices in New York, London, Dublin, India, and Singapore. They’re expanding their operations in the Middle East, helping entities like Central Bank of the UAE explore digital currencies and create new capital markets for the region.

    R3’s mission is to enable an open, trusted, and enduring digital economy. They envision a world where businesses and individuals can hold and trade digital value safely. They aim to modernize existing market infrastructure and help central banks issue digital currencies, an endeavor they find incredibly exciting.

    Looking back, Todd sees the journey as a continuous process of learning and improvement. His advice to his younger self or to any budding entrepreneur? “Make faster and quicker decisions,” he says, “because most decisions are reversible, and executing them quickly allows you to realize whether you’ve made the right one or not.”

    Listen in to the full podcast episode to find out more, including:

    • How the Co-founder of R3 embarked on a unique approach to starting his company, prioritizing customers’ needs before product development.
    • The challenges faced during the company’s fundraising journey, which included securing support from key investors and managing challenging experiences.
    • The importance of developing strong investor relations and demonstrating long-term value as key strategies for successful fundraising.
    • Insights into the future of R3 and its mission to enable an open, trusted, and enduring digital economy, including their pioneering work in modernizing market infrastructure and partnering with central banks.

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    Neil Patel

    I hope you enjoy reading this blog post.

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