The fintech sector has had its ups and downs as of late, with Klarna experiencing hefty valuation cuts, Fast shutting down, and Robinhood and Better conducting mass layoffs. Despite the market turbulence, investors remain bullish on the potential value that financial technology startups can bring worldwide.
To understand how fintech startups are preparing to weather the current downturn, we talked to eight investors who shared thoughts on the market as a whole – both today and in the future.
Most of the investors agreed that there is opportunity in a downturn and that a correction of sorts is actually not a bad thing.
“Despite the current market sentiment, our bias at Lightspeed points in the direction of optimism. That doesn’t mean we’re sugarcoating things for our founders – to be clear, the road ahead will be hard,” said Justin Overdorff, partner at Lightspeed Venture Partners. “But we see the silver lining for companies who don’t let a good crisis go to waste, revisit their assumptions on talent, cut non-essential activities, hone their business model, and consolidate their lead. Those who do survive whatever comes next will emerge stronger.”
The group also agreed that favorable unit economics and operating with capital efficiency are more important than ever.
“Now, in a rising interest rate environment, investors across stages are valuing companies based on fundamentals and prioritizing capital-efficient growth, while looking more closely at public market comps for valuation guidance,” said Addie Lerner, founder and managing partner of Avid Ventures.
Many of the investors say the downturn has not affected their investment thesis while acknowledging that their pace of investing has slowed as they seek to invest more discriminately.
“We avoided much of the FOMO-based investing in unproven models, markets, and products of the last two years, so the downturn has (so far) been mixed-to-positive in that we are able to retain our strategy while investing in a more fund-friendly environment,” said Nik Milanovic, general partner of The Fintech Fund.
Read the full survey for an inside peek into what fintech investors think about the sector, why they are encouraging portfolio companies to pursue extensions, and how to best approach them for pitches.
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