From embedded payments to the rise of Web 3.0, the venture-backed fintech industry is highly dynamic, agile and one of the first spaces to respond to the latest market trends.
We asked fintech leaders across our portfolio companies to share what’s top of mind for them in 2023, and here’s what they had to say:
WHAT ARE YOUR PREDICTIONS FOR THE FINTECH/VENTURE CAPITAL MARKETPLACE IN 2023?
Demonstrating company strength
Dax Rodriguez – co-founder & chief commercial officer, Sarna: It’s safe to say that the fintech VC outlook became more challenging in 2022 and we expect that will continue throughout 2023. We predict that investors are looking to lower their risk and for teams they perceive could weather a post-COVID environment with slow or weak economic growth, inflation, rising interest rates, and global political instability. A PowerPoint presentation and a good idea will not convince investors to commit capital. To secure investment, fintech startups will need to show the strength of their team by demonstrating they are successfully executing go-to market plans (building product and launching), showing growth (customer acquisition) and perseverance (the agility to survive these market conditions).
Fintech consolidation
Ali Jelveh – chief technology officer, CRS: 2023 will be a turbulent year as we’re seeing a lot of consolidation happening on the fintech side and a significant slowdown in venture capital activity – at least for the first half of the year. However, we believe this consolidation can be a big opportunity to capture market share if you are prepared to hustle. A lot of organizations will look to retool, optimize processes and tackle larger shifts in consumer credit makeup that will force businesses to adapt or they will struggle. On a longer timeline, we remain very bullish on both the fintech and venture space. In a lot of fields, we are still scratching the surface in regard to the digital experiences and available APIs. However, we believe in the rise of meta frameworks that unlock previously inaccessible or highly complex parts of the fintech stack, specifically with what we’re doing for the field of regulated data (e.g., credit data, public records, income/assets).
Nabi Awada – founder & CEO, Lynk: We predict some level of consolidation in the fintech space as emerging startups who haven’t found profitability and/or extended their runway start to hit a financial dry spell. Larger companies, or better-capitalized startups, will acquire them to augment their capabilities, enter new markets or increase their customer base. In addition, VCs will put greater focus on profitability and sustainable business models instead of the ‘growth by any cost’ or ‘we’ll figure it out later’ models. Some firms might also decide to slow down investments and double down on potential winners in their portfolios.
Bringing VC back-to-basics
Brian Perrot – co-founder & president, BluePallet: In the venture space, we are already seeing a back-to-basics approach to investing in startups at all stages. As a result of the venture cycle, valuations are pushed up as long as possible until there is the inevitable crash and reset within the market. Although it’s never a soft landing, these cycles are needed to weed out the pretenders and play out the survival of the fittest.
Throughout the coming year and beyond, business fundamentals and smart, precise capital allocation will be critical. Good companies will survive, and I expect to see massive value creation in the long-term, stemming from this crop of startups.
It’s an amazing time to invest as a VC in this crop of startups because, with the right conviction, you can find some very promising companies at great value. In 2023, we will likely see more flat rounds, more down rounds and more companies that close shop as the markets settle.
Those VC’s who stay the course, don’t follow the herd and do their due diligence will be rewarded. Talent will be easier to come by and competition will be thinner, so VC’s can see some huge returns in the coming years if they have a startup with solid business fundamentals, battle-tested founders and the right amount of revenue and venture capital.
Democratization of venture capital
Tom McGrath – CEO, iink Payments: One thing I’m excited about is I think there will be democratization of venture capital in the sense that a person who doesn’t have half a million dollars to contribute to become an LP will have the opportunity to get in on some of those returns typically reserved for very wealthy people.
Investor appetite
Maurice Iwunze – co-founder & CEO, SympliFi: I think 2023 will be the year of picks and shovels for fintech VC. There will continue to be a strong investor appetite for companies building new tools and infrastructure to power businesses.
Overcoming first-time investor challenges
Esteban Villegas – co-founder & CEO, Zulu: Pre-seed and Seed funding will be very hard if you are a first-time founder due to rising interest rates. However, experienced founders will not have any issues raising. VC’s will think: 1) Deploy funds in a first-time founder and risk 99% chance of losing funds, or 2) Invest in bonds and receive a percentage in guaranteed returns. This is definitely not good for entrepreneurs.
WHAT INDUSTRY TRENDS ARE YOU KEEPING A CLOSE EYE ON IN 2023?
International investing
Dax Rodriguez – co-founder & chief commercial officer, Sarna: The investing culture in the European Union is changing. The perception of market investing being reserved for the wealthy is dissolving due to the entry of Robinhood copycats such as DEGIRO, Trade Republic and Freetrade in Europe. In addition, mandatory state-sponsored pension systems more than 100 years old are not working. EU citizens are becoming more aware that they need to invest outside of these systems in order to have enough money for retirement. While 3.5% of EU households invested in local stock markets in 2019, we saw it double to 7% in 2020 and will expect it to grow to 25% by 2023.
Most interestingly, the demand for local EU stock markets is dwarfed by the demand for U.S. stocks such as Tesla, MSFT and Apple. This provides an opportunity for a firm like Sarna to provide easy, affordable access to U.S. markets.
Industry regulation
Ali Jelveh – chief technology officer, CRS: There are several major regulatory shifts, including fundamental changes in mortgage underwriting, that will have significant ripple effects through many industries. This, in combination with the drastic reduction in volume today and first hints at easing from the Fed, might result in a sudden unleashing of pent-up demand in the second half of 2023.
Adjusting to the looming recession
Nabi Awada – founder & CEO, Lynk: As we start to feel the true weight of the recession, businesses will look at immediate cash flow access and reduce processing rates as a critical means for survival. We will also likely have an increased and renewed interest in alternative funding/lending practices. Lastly, merchants and consumers alike will continue to become disillusioned by card payments and fees as the economic slowdown starts to impact cost of living for consumers and operating efficiency for merchants/platforms.
Digital payments
Tom McGrath – CEO, iink Payments: Everyone has their eye on digital payments. I don’t think there’s anybody out there who believes that paper checks are here to stay. Digital payments is a trend/wave we continue to ride and push with insurance carriers who are often still using these more antiquated payment methods.
Sustainability
Brian Perrot – co-founder & president, BluePallet: One trend in the chemical market I’m keeping a close eye on is the increasing demand for sustainable and environmentally friendly chemicals. There is growing awareness about the impact of chemical production and use on the environment, leading to a shift towards the development and use of green chemicals. This includes biodegradable and bio-based chemicals, as well as chemicals that are derived from renewable resources and have a lower environmental impact throughout their lifecycle. Additionally, there is increasing pressure on chemical companies to reduce their greenhouse gas emissions and implement more sustainable business practices. This trend towards sustainability is likely to continue in the coming years, and it will be interesting to see how the chemical industry responds.
Blockchain technology
Maurice Iwunze – co-founder & CEO, SympliFi: It’s been quite an interesting past couple of months in the web3/crypto space. As the dust settles, I am keeping an eye on how the underlying blockchain technology will evolve and what new products and companies will emerge as the industry matures. I’m also keeping an eye on how the major banks will adopt and invest in the technology.
Cryptocurrency
Esteban Villegas – co-founder & CEO, Zulu: While crypto B2C was the trend for both 2021 and 2022, 2023 will be the year of B2B crypto.