Our VC told us they won't follow for Series A. At the worst moment

Ten months ago, after attending YC, my co-founder and I decided to throw our product in the trash and start a new idea.

Morale was at an (I believed) all-time low. We came with a 'verticalized neobank' idea (we have a strong background in fintech) and got slapped in the face by our VC.

It was hard to hear, the temptation to push back and/or shut down to end the spiraling was strong. I believe this happened to a lot of founders, but we decided to put it out on the open on Sifted, to normalize this very messy moment, and the mental health challenges implied: https://sifted.eu/articles/startup-pivot-part-2/

Thank you for sharing this. Very tough situation for you and your team.

I'm not surprised the neo bank idea was shut down. The profit margins are really low and moving forward, capital is going to be expensive.

In India, most neobank startups are bleeding money through rewards and incentives funded by VCs and they are all shutting down one by one.

There is no moat. Support is expensive. They are still tied up with a traditional bank because getting bank license is not an option for startups. This is the case almost everywhere, not confined to India. You would be working with a legacy bank and inherit all the limitations.

Banking is free for most people. UPI and rupay run by government agencies result in 0% charge for merchant and consumers. So you can forget about any transaction related fees.

This might not be common across the world but there is no lock in when investing in funds in India. You cannot lock in customers for mutual funds and related investment legally anymore as of last year, I believe. So not possible to make profit on investment management side.

It's really tough for a neobank.

I work in finance and I am not sure if I want to applaud or feel for people starting neobanks. The amount of regulation and infrastructure needed to deal with other people’s or companies’ money is downright insane and requires tons of upfront investment.

Maybe I do not understand what “neobank” is. Is it that they concentrate on a very narrow part of banking functionality that is relatively light on regulation? Or do they try to creatively interpret the regulation, Uber-style?