It’s a time of reflection and anticipation at The Fintech Times throughout December, as we look back at developments and trends over the last 12 months and forward to the year ahead.
We’re excited to share the thoughts of fintech CEOs and industry leaders from across the globe to 2023’s key takeaways and what we should expect to be top of the agenda in 2024.
The European tech industry has stabilised after two years of turbulence, and is finally beginning to bounce back, according to Atomico’s State of European Tech Report for 2023. Over the last year, however, investors have retreated globally, with total capital invested down by 45 per cent in Europe, in line with the global average which is down 39 per cent.
So what can we expect going forward? Today we hear from industry experts on funding and investments.
‘Leaner but resilient’
Scalability, even in the absence of rapid growth, will be the driving factor behind successful companies in 2024, according to Kevin Chong, co-head of Outward VC, a London-based venture capital firm that invests in early-stage fintech startups. He suggests that founders who resisted the temptation to chase glitzy valuations and focused on long-term value creation will be the firms that achieve success next year.
Chong expects more funding discipline from investors across the board – following the inflated valuations seen during 2021 and the ensuing downmarket that followed. While fintech growth models and measures will be long-term by definition, rather than by exception – short-termism is dead.
“This coming phase will see leaner, more resilient start-ups matched with leaner, more resilient investors,” he says. “We will see the drivers of innovation shift from mobile and cloud computing to data and profound advances in AI. We will see a convergence of sectors where start-ups are built on the intersection of climate, education, financial services, and health.
“This coming phase could well be the best time for startups and VC investors in a long time. What gets built in this coming phase is much more likely to endure.”
For Eve Picker, founder and CEO of SmallChange.co, an equity crowdfunding platform for real estate development with social impact, the industry is still just ‘coping’ with the effects of the pandemic three years after Covid hit and still influenced by the ongoing chaos and economic uncertainties.
She says: “First, we have become increasingly reliant on technology to keep our work contact-free. Second, the economic upheavals of the pandemic taught us to be lean, lean, lean. Soaring interest rates are underscoring this lesson.
“The upshot is that over the past 12 months, many investors are not investing; they are just trying to hang on. Given the ongoing chaos in the fintech and investment worlds, we all might welcome positive predictions, but we won’t necessarily act on them.”
Emerging from a hangover
“2023 was the year of ‘efficiencies’, he says. “Quite honestly, after 8.5 years of running a startup I haven’t ever experienced a funding cycle like this. While Bud is in a fortunate position of not needing to fundraise for well over another year, there has been secondary and tertiary effects felt on sales cycles and general SaaS metrics across tech from expensive capital. These were particularly acute in the middle of the year, so if you felt that, too, you are certainly not alone.
“Following a challenging period of uncertainty, it does look like the growth mindset is coming back into both startups and big banks, with fintech and growth stocks being up around 30 per cent in the last 60 days.
“I am optimistic fintech will emerge from the covid-induced hangover in a strong place assisted by new AI products by the middle of the year. I’m amped up about what 2024 will bring as both a founder and technologist.”
Creative funding and agile strategies
Phil Rosen, global CTO at digital financial services and lifestyle content platform MoneyLion, addresses what fintechs must do to attract funding in 2024.
He suggests: “As the economic climate evolves, innovative fintech startups will thrive in 2024 by embracing creative funding models and agile strategies, such as using private credit and capitalising on strategic partnerships to foster growth and adaptability.
“This new trajectory will pave the way for a dynamic and resilient sector less reliant on cheap capital.”
Nick Parminter, founding partner and CEO at consultancy Class35 believes that the ‘great reset’ for venture capital is depressing valuations and prompting a shift towards verticalised software solutions with opportunities for fintech integration in niche markets.
“The tail-back caused by the ‘great reset’ for VCs is depressing valuations, fundraising amounts and new company formations, and prompting management teams to refocus products to ‘core’, reduce burn rates and optimise what they’ve got.
“I can’t see the VC market bouncing back in aggregate, but would expect a renewed focus on solutions in these areas. We’re still seeing a very obvious movement towards the ‘verticalisation’ of software, as software businesses become ‘one stop shops’ for vertical niches.
“There is now an established playbook of making software available to the ‘long tail’ of small and medium sized businesses that enables an ‘enterprise-like’ software experience, which continues to create opportunities for fintech. You can see evidence of this in the growing number of software businesses leveraging fintech, by embedding capability like lending, financing and card issuing into their service – as well as finance products for vertically niche use cases like Hammock or Ark Rent for landlord accounting.
“As business and consumer coping mechanisms shift from borrowing and growth to conserving and efficiency, this creates obvious opportunities for solutions designed for tougher times, like treasury management for businesses, or credit rating builders for consumers.”
Nelson Chu, founder and CEO of credit marketplace Percent, provides insights primarily pertain to the thriving private credit sector. He believes that private credit had a successful year in 2023, benefiting from funding cutbacks and the bank crisis, and he anticipates exponential growth for the asset class in 2024, driven by increasing demand, new entrants, and a shift towards technology for transparency and accessible data.
“With funding cutbacks and March’s bank crisis, 2023 was private credit’s golden year. Industry stalwarts like KKR and Blackstone loomed large but this year also saw new players enter the market – boutique asset managers, wealth managers, family offices, serving as a new capital source for SMBs and consumer-facing businesses. Private credit continues to prove its worth, powering Main Street and providing companies with reliable access to capital.
“For 2024, private credit will live up to its exponential growth expectations – with the asset class expected to reach $2.7trillion by 2026. Our study with Coalition Greenwich further confirms this, with more than 60 per cent of investors surveyed increasing allocations, which is expected to outperform US government and corporate bonds, and real estate.
“This increased demand will come with more new yet traditional entrants, particularly from the banks who will partner with credit funds (e.g. Wells Fargo or SocGen) or leverage asset management businesses (e.g. Goldman Sachs or Morgan Stanley), instead of their traditional deposit base. With more turning to private credit, technology that provides transparency and accessible data will become paramount as investors’ expectations for private markets become more closely aligned with their expectations from their public market investments.”