Last year, more than 20% of venture dollars went into fintech startups globally, according to CB Insights. Equally notable:
One-third of all unicorns created in 2021 were fintech companies.
This year, market conditions are dramatically different in every sector, including fintech. But while this year’s pace of funding in the fintech space is noticeably slower — and falling — the fact remains that the sector still accounts for a significant share of venture funding globally. In the second quarter, for example, about 18% of global venture dollars went into fintech startups.
To give TC+ readers specific knowledge about what fintech investors are looking for right now and what you should understand before approaching them, we interviewed eight active venture capitalists in the sector over the last couple of weeks. Their answers have been edited for brevity and clarity.
Here’s who we surveyed:
- Paul Stamas, managing partner and co-head of financial services, General Atlantic
- Alda Leu Dennis, general partner, Initialized Capital
- Michael Gilroy, general partner and co-head of fintech, Coatue
- Justin Overdorff, partner, Lightspeed Venture Partners
- Addie Lerner, founder and managing partner, Avid Ventures
- David Jegen, managing partner, F-Prime Capital
- Nik Milanovic, general partner, The Fintech Fund
- Jay Ganatra, co-founder and managing partner, Infinity Ventures
Paul Stamas, managing partner and co-head of financial services, General Atlantic
Globally, fintech startups raised $131.5 billion in venture funding in 2021. As a firm that has been investing in the space for a while, what differences in the landscape have you seen since this time last year? Were deals much more competitive last year?
There is no question that the deal environment is slower now than it was this time last year, particularly with respect to late-stage growth. Many companies are rightly focused internally on optimizing their business and waiting to test the market. There still appears to be a bid-ask spread in private market expectations relative to, say, public market valuations.
Deals do feel a little less competitive, but there are still a lot of capital providers – General Atlantic being one of them – who are excited to continue to invest in great opportunities and back great entrepreneurs. The environment has caused the pace of a deal to slow down, which, honestly, is probably a good thing. It gives companies and investors more time to get to know one another and perform diligence, in both directions.
“Adversity breeds tenacity, and we predict some exceptional companies will come out of this market cycle.” Justin Overdorff, partner, Lightspeed Venture Partners
Many people are calling this a downturn. How has your investment thesis changed in the last several months, and are you still closing deals at the same velocity?
Our thesis has largely remained the same. We’re still excited to invest in longstanding themes related to the transition to the digital economy and the globalization of entrepreneurship, and we are actively pursuing opportunities to back visionary entrepreneurs with proven business models. What has always been the case is that we gravitate toward situations where we believe, and where the company believes, that we can be a trusted partner and add substantial value. As we enter a more challenging macro environment, maybe that promise resonates even more. We’d like to think our 40-plus-year track record through some complex operating environments puts us in a position to help.
Fintech companies often have multiple revenue levers – adding new product lines, building in payments, etc. How viable will these levers be for fintech companies in 2022 looking to defend their 2020-2021 growth rates?
