Over the last few years, fintech’s revolution has seemed like a
rising tide. Leviathans like Stripe and Square edged out banks while newbies like Brex nonchalantly raised nine-figure rounds. Today, nevertheless, the state of the financial innovation industry feels more wobbly– some healthy start-ups in the genre are faring much better than ever, while others are feeling the strain as customers tighten their wallets and change their spending patterns. It’s clear that we’re visiting some fintech startups battle in the future, but investor claim not to think in a short-term way. We ran our last fintech VC survey in November 2019, so we wanted to get their take on where fintech is today. We turned to eight leading VCs to better understand the state of the market, which market signals they’re tracking and where opportunities still exist within the already-crowded pool of financial services:
Next week, we’ll publish the other findings we got from these investors, focusing on fintech’s future in a post-COVID-19 world.
What follows is a collection of themes we noted from the investors, followed by their at-length reactions.
Investing speed, flight to quality, differed impacts and uncertainty
Our first style deals with investing speed. More financiers than we expected wanted to keep in mind that their investing pace into fintech companies was slowing for one reason or another. While it’s end up being a cliché for private investors to state that they are open for business as a market signal, that doesn’t appear to suggest that investments into fintech won’t slow.
The reasons why investors are slowing their speed of offers is varied, with some keeping in mind problems on their end (difficulty to reach conviction while running remotely, etc.), and some detailing that some fintech business are more internally focused today than connecting to raise new capital. Investors also kept in mind an expectation for fundraising to take longer and lower valuations. While that’s not great for founders, it’s likewise not the worst news; there is still money out there to be raised, and numerous investors claim they are composing checks of the exact same size as before.
The 2nd style deals with an expected flight to quality, with financiers worrying that startups in the space must cut spend that isn’t core to survival (marketing spend around branding was raised, for instance), focus on crucial business metrics (unit economics, aggregate profitability), and monitor leading business signs more closely. This is not an unexpected set of guidance, per se, but it is one that matters. If founders will listen stays to be seen, but investor are clearly signifying a return to more sober service operations.
Our 3rd style deals with how varied the impact of COVID-19 has been on fintech companies. As TechCrunch has actually reported, fintech business have seen a dispersed set of outcomes considering that the pandemic closed much of the U.S. economy. When checking out through investor responses, the true scale of this divergence ended up being clear. The brand-new reality is not merely that some fintech companies are doing a bit better or a bit worse. Instead, it’s that some are sharply down, some are flat, and some are skyrocketing. This is possibly a great argument for tightening what fintech indicates, or maybe dealing with the category on a more customized basis; fintech may have become too broad a container to deal with as a group.
And finally, our 4th style is uncertainty. Our financier group this morning isn’t anticipating the economy to snap right back. But when it will return, and in what kind, are far from clear. 2020 might be a lost year, said Brendan Dickinson from Canaan. The market healing will not be swift, said Matt Harris of Bain Capital Ventures. And Charles Birnbaum from Bessemer Endeavor Partners stated that “economic shocks” all “play out quite in a different way from one another.”
With that collection of notes, let’s start. Reactions have actually been modified for length and clarity.
Matt Harris, Bain Capital Ventures
What portion of your fintech portfolio companies is prospering? What part is struggling?
Just recently, we’ve started to look at our portfolio along 2 dimensions. The very first measurement is the vulnerability of the business in general, thinking about things like cash balance and level of burn, fundraising needs and toughness of income. The second measurement is the effect of COVID-19 on that business. Fortunately, a good part of our portfolio fell into the positive end of both dimensions, and we fasted to focus our attention on companies with either high vulnerability or high COVID-19 effect.
Companies that relied more on transactional profits and exhibited urgent requirement for capital that couldn’t be fixed by cost-cutting measures are the most susceptible, while organisations fixated customer investing and costs, or those business serving extremely affected sectors like restaurants and take a trip tend to be most affected.
Article curated by RJ Shara from Source. RJ Shara is a Bay Area Radio Host (Radio Jockey) who talks about the startup ecosystem – entrepreneurs, investments, policies and more on her show The Silicon Dreams. The show streams on Radio Zindagi 1170AM on Mondays from 3.30 PM to 4 PM.