[TechCrunch Repost] 7 investors reveal what’s hot in fintech in Q1 2023

Interview in TechCrunch with 7 VCs about the current market environment

Mary Ann Azevedo (@bayareawriter), Senior Reporter at TechCrunch, asked me, along with 6 other VCs, to share my views on the current funding environment and what I’m most excited about in fintech.

We are witnessing tremendous innovation across the lifecycle of a private investment — innovation that’s happening from founders in all corners of the world.

Now that more investors have access to private markets thanks to distribution platforms like iCapital, Republic, Allocate and many more, the data and infrastructure problems are being solved. Better data, transparency and networked communication enable price discovery, which enables liquidity. There are some exciting companies working on post-investment solutions.

We believe the digitization of the post-investment process is critical to enable the next evolution of private markets. From SPV infrastructure (Bunch) to fund closing (Passthrough) and fund accounting (LemonEdge) to more real-time valuation and monitoring (73 Strings), private markets are witnessing innovation that will make them go mainstream.

Below is an excerpt of the interview in TechCrunch.

You can read the full interview in TechCrunch here (behind the paywall).

Thanks Mary Ann for giving me the opportunity to share views on the current funding environment and why we continue to be excited by the innovation happening in the alts space, particularly in areas like distribution of alts to more investors and pre- and post-investment infrastructure.

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7 investors reveal what’s hot in fintech in Q1 2023

Mary Ann Azevedo, TechCrunch

The global downturn has impacted every sector, but fintech bore the brunt of it as public-market valuations fell off a cliff last year.

However, it appears that even though VCs are proceeding more cautiously than before and taking their time with due diligence, they are still investing.

CB Insights recently found that two of the largest global VC firms, Sequoia Capital and Andreessen Horowitz, actually backed more fintech companies in 2022 than any other category. In both cases, about 25% of their overall investments went into fintech startups.

While global fintech funding slid by 46% to $75.2 billion in 2022 from 2021, it was still up 52% compared to 2020 and made up 18% of all funding globally, proving that investors still have faith in fintech’s future.

You could even say some are bullish: “If anything, I expect our investment pace to increase this year as early-stage fintech companies prioritize operational discipline and product differentiation,” said Emmalynn Shaw, managing partner of Flourish Ventures.

The tougher conditions created in the past year have resulted in down (and smaller) rounds, M&A and an emphasis on fundamentals. Gone are the days of investing on a whim.

But for Ansaf Kareem, venture partner at Lightspeed, the tough times can be seen as a good thing because they often create the best companies. “If you study previous compression periods in the ecosystem (e.g., 2008 and 2000), not only have we seen outstanding companies being formed, we’ve also witnessed great venture firm performance during these windows,” he said.

“The last two years in the venture ecosystem were an anomaly, but I believe we are coming back to a healthy ‘normal.’ Diligence cycles have extended, better relationships with founders can be formed, investors can enter new spaces with more preparation and a thoughtful approach to early-stage venture capital can emerge,” Kareem added.

“Challenging market conditions drive a sense of discipline and perspective that can be a gift.”Emmalyn Shaw, managing partner, Flourish Ventures

So whether you’re seeking to raise your first round or your third, make sure you focus on fundamentals, save cash and don’t shy away from raising a down round if you think your idea may change the world, several investors said.

“Grow in a way that’s smart and sustainable for the long run,” advises Michael Sidgmore, a partner at Broadhaven Ventures. “We can’t control the macro environment, and today’s geopolitical climate means that there may always be the threat of exogenous shocks on the market. But the markets will bounce back at some point. So just grow in a manner that lets you focus on unit economics and profitability so that you can control your own destiny no matter what market we are in.”

To help TechCrunch+ readers understand what fintech investors are looking for right now (and what they’re not!) as well as what you should know before approaching them, we interviewed seven active investors over the last couple of weeks.

Spoiler alert: B2B payments and infrastructure remain on fire and most investors expect to see more flat and down rounds this year. Plus, they were gracious enough to share some of the advice they’re giving to their portfolio companies.

We spoke with:

• Charles Birnbaum, partner, Bessemer Venture Partners

• Aunkur Arya, partner, Menlo Ventures

• Ansaf Kareem, venture partner, Lightspeed Venture Partners

• Emmalyn Shaw, managing partner, Flourish Ventures

• Michael Sidgmore, partner and co-founder, Broadhaven Ventures

• Ruth Foxe Blader, partner, Anthemis

• Miguel Armaza, co-founder and general partner, Gilgamesh Ventures

Michael Sidgmore, partner and co-founder, Broadhaven Ventures

[MA] What are you most excited about in the fintech space? What do you feel might be overhyped?

[MS] Private markets are undergoing a very exciting market structure evolution from pre- to post-investment that will enable alternative assets to become mainstream. Platforms like iCapital, Republic and Allocate have unlocked access to private-market investment opportunities.

Now that more investors have access to private markets, the data problem is being solved. Better data, transparency and networked communication enable price discovery, which enables liquidity. There are some exciting companies working on post-investment solutions.

We believe the digitization of the post-investment process is critical to enable the next evolution of private markets. From fund closing and fund accounting to more real-time valuation and monitoring, private markets are witnessing innovation that will make them look more like public markets over time.

In many ways, fintech feels underhyped right now. There are quality companies at all stages that are now undervalued. This period has been a good reminder that many fintech companies in the public markets will often trade more like finserv incumbents than tech companies.

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You can read the full article with insightful answers from a number of VCs here.