What’s the State of Fintech Investing Today? Takeaways from fintech meetup
Intro
Eight years ago, I began delving into fintech investing, analyzing financial services stocks and having the good fortune to speak directly with C-suite leaders of public companies. My journey then evolved to late-stage fintech financing, where I had the lucky front-row seat of being part of Stripe's massive financing rounds. More recently, I've been deeply involved in pre-seed and seed fintech investing, both as a founder and an angel investor.
I’ve seen market cycles after having been an investor for 10+ years, yet I still find the volatility and rapid pace of change in fintech sentiment intriguing. For context, the ARK Fintech ETF surged 3x from 2020 to 2021, then saw an 80% decline from its peak by 2023. On the private front, fintech's share of total VC funding dramatically decreased to 6.2% in 2023, falling to the 8th most funded sector from a robust 12.1% and 2nd place in 2021, right after SaaS, according to Carta.
Recently I had the opportunity to attend the Fintech Meetup conference, and here are some takeaways that I hope will be useful for fintech founders and operators building in the space.
This blog post has 3 parts:
What’s the snapshot of today's fintech venture investing climate, and how has it changed?
Where are fintech VCs placing their bets these days? Which segments are they excited about, cautious of, or are highly debated (based on the collective VC perspectives from Fintech Meetup)?
Considering the current disruptive VC financing environment, what advice can be offered to fintech founders and builders?
Part 1- Current Landscape of Fintech Venture Investing
Fintech investments have taken the brunt of the current VC downturn, experiencing the most drastic decline across all sectors in 2023. From being the 2nd favorite VC investment sector in 2021, fintech plummeted to the 8th position in 2023.
Source: Carta
By Stages: early stages were struck harder compared to the growth-stage. Early-stage investment in fintech and financial services in 2023 was $12.4 billion — the lowest since 2016. Similarly, seed and Series A saw the largest decline in deal count by stages.
Source: S&P Global
By GTM: The impact was uneven across the board, with B2C fintech experiencing a much sharper decline than B2B fintech. In 2019, B2C fintech constituted around 60% of all fintech VC investment in 2019, only to dwindle to about 28% in 2023, as per Pitchbook.
Personal Anecdote: From my own investing experience, I used to see fintech startups easily command a $50M valuation with only a pitch deck back in 2021. More recently, I'm seeing exciting startups with functional products, engaged beta customers, and experienced founders raising at valuations below $8M. I’m excited to connect with fintech founders who are at the pre-seed or seed stages, so please don't hesitate to reach out.
Part 2 - Dissecting VC Perspectives from Fintech Meetup
The Fintech Meetup convened a list of remarkable investors: Angela Strange (a16z), Matt Streisfeld (Oak HC/FT), Ryan Gilbert (Launchpad), Lizzie Guynn ( TTV), Arvind Purushotham (Citi Ventures), Seema Amble (a16z), Sarah Hinkfuss (Bain Capital Ventures), Ruth Foxe Blader (Foxe Capital), Katie Palencsar (Anthemis), and others. Their combined insights offered a multifaceted view of the current fintech scene.
(Largely) Consensus Hot: GenAI
Angela Strange was especially outspoken about her enthusiasm for GenAI, drawing parallels with the smartphone revolution of the 2000s and suggesting we're at the dawn of a comparable paradigm shift. Despite some skepticism, she highlighted the transformative potential of GenAI, citing real-world applications such as SBA lending where it has greatly accelerated underwriting processes. The general agreement was that GenAI’s capacity to unlock powerful datasets will pave the way for groundbreaking financial applications. For instance, Black Ore secured $60M from a16z and Oak HC/FT, aiming to serve both smaller CPAs and larger enterprises by leveraging AI in various capacities — not just extracting data for 1040s but also enhancing calculations, contextualizing questions, and more.
Divided Opinions: Wealth-Tech, Consumer Fintech, and Embedded Finance
Wealth-tech stands at the cusp of opportunity with a looming generational wealth transfer estimated at $90 trillion, promising prospects for both advisory and consumer platforms. Yet, challenges remain on the GTM strategy, particularly the economics of selling to long-tail RIAs, and uncertainty about how profoundly GenAI will impact wealth-tech, questioning if it's confined to mere incremental efficiency gains.
Consumer fintech received a lukewarm reception, with a division among panelists: three-fifths deeming it out of favor, one with a positive outlook, and another optimistic contingent on GenAI's application. A VC pointed out that there is now a palpable reluctance to invest in consumer fintech among VCs, a sentiment that seems disproportionate to the reality of the substantial consumer finance market in the U.S.
Embedded finance incited similar debate. Some contend that the buzz around embedded finance from a couple of years prior might be dwindling as numerous vertical SaaS companies have recognized the complexity of launching such products, opting instead to redouble focus on their core offerings. Yet, others remain positive about its potential, particularly in applications like payroll and industries like digital health and agriculture, where embedded finance could be transformative in the coming years.
(Largely) Consensus Out of Favor: Neobanks, Insure-tech, Lending
Panelists were united in their view that neobanks, insure-tech, and lending sectors have cooled off, signaling a shift away from these sectors that were once popular.
Part 3 - Advice to Founders in a Disrupted Financing Landscape
In the currently challenging fintech VC landscape, here is some guidance for founders from speakers at the Fintech Meetup:
Proactive Fundraising Planning and Prioritize Early Revenue Generation
Founders must proactively plan their fundraising strategies for the next 1-2 years, recognizing the distinct challenges at each company stage. Well-capitalized firms may face valuation overhangs, while those seeking funds need to prepare in advance for key metrics to spotlight. Pre-seed founders should work on securing paying design partners early to ensure revenue can also serve as a capital source.
Anticipating VC Investor Turnover
With the acceleration of VC turnover, it's prudent for founders to diversify their relationships within VC firms. Such a strategy offers protection against the departure of a single investor contact.
Adjusting to the Technical Buyer
Angela Strange highlighted another exciting trend beyond GenAI: the evolving buyer profile in financial services, shifting from a pure financial buyer with an ROI-centric view to one that increasingly includes a technical buyer looking at docs and other technical aspects. Founders are encouraged to tailor their strategies accordingly to appeal to this growing buyer profile.
Disparity Between Public and Private Markets
The enthusiasm witnessed in public markets (S&P 500 and Nasdaq reaching all-time high) is not reflected in the private sector, where VC engagement is limited and many firms are pausing active investments. As such, founders need to heavily focus on capital efficiency and set expectations accordingly.
Ending with a Personal Note
Recently I’ve really enjoyed connecting with early-stage fintech founders. Despite the current headwinds in fintech investing, I remain very optimistic about the potential for disruptions and innovations in the space after having spent a decade in financial services and fintech. So please reach out if I can be helpful or if you just want a thought partner.