2Q23 fintech startup advice from A-List investors QED, Oak HC/FT, Bain, Nyca, FT Partners

Fintech investment banking leader Steve McLaughlin is key to the ecosystem for obvious reasons. For startups and the VCs who back them, his firm FT Partners is critical to endgames. FT Partners has been involved in most of the high profile deals of the era, they know every fintech team, and they connect VCs and startups to incumbents and public markets. As such, Steve always comes strong with his webinars, and the latest to kick off 2Q23 is no exception. It was full of great fintech startup advice from A-List VCs QED, Oak HC/FT, Bain, Nyca. Below are the participants, key excerpts, and a link to the full session. It’s a must-watch.

2Q23 FINTECH ADVICE WEBINAR PANELISTS

HOST & MODERATOR

– Steve McLaughlin, Founder & CEO, FT Partners

PANELISTS

– Annie Lamont, Co-Founder & Managing Partner of Oak HC/FT

– Nigel Morris, Co-Founder & Managing Partner of QED Investors

– Hans Morris, Managing Partner of Nyca Partners

– Matt Harris, Partner at Bain Capital Ventures

FINTECH FUNDING ISN’T DEAD

ANNIE LAMONT: [Fintech funding] Market is going to be pretty active in the next year.

MATT HARRIS: It’s a fallacy to claim there’s no capital available to fintechs. There’s less capital in 2023 than 2021, but there’s more capital in 2023 than in 2019. With the exception of COVID exuberance, this is the most capital rich market we’ve ever seen for fintechs.

HOW FINTECHS WILL GET FUNDED IN 2023

MATT HARRIS: The problem now is that some fintechs raised too much money at terrible prices and made bad decisions with it. 100x ARR and built 5-10-15m burn rates are going to struggle to raise capital again ever. It’s really hard when you meet with a company that has $22m of ARR, was last valued at $1.5b, and is still burning $6m a month. That’s not an actionable company. Companies who raised Series A in 2022, who now need Series B or C, have clean cap tables, good habits, and 2019 valuation expectations — those deals will happen like that [in a snap].

STATE OF FINTECH UNICORNS

ANNIE LAMONT: There are only going to be so many fintech companies that’ll be valued over $1 billion. But there are a number of smaller, great companies that can be built, and will be sold to strategic buyers. If they’re profitable, they can be sold to private equity.

SOBER FINTECH STARTUP ADVICE TO CEOs

I liked this single, simple remark from Hans because this sounds more like a buyside investment manager talking than a VC talking. It was refreshing.

HANS MORRIS: Company values are present value of future cash flows.

Then Nigel came in with a strong reality check.

NIGEL MORRIS: If you’re holding out hope that ARR multiples will return to where they were in the champagne days, you’re probably delusional. The chances of that happening in our lifetimes is very low. It was a perfect storm of events that led to those valuations. We’re not good yet in fintech land at measuring the synergies that can emerge with strategic M&A and investment. Particularly with banks with deep pockets, brand, distribution, know how to deal with regulators. There is real synergy there that can turbocharge a fintech. We don’t know how to value that well, but we’ll see those opportunities emerge in the next couple years.

But Nigel also offered a positive note for some of the bigger fintechs.

NIGEL MORRIS: We’ll see the emergence of the super fintechs. But they understand unit economics. “I’ve got brand, data, I can offer other products.” We’re seeing a number of those super fintechs start to emerge. It’ll be very interesting to see which of those emerge.

IS 2023 BEST TIME FOR FINTECH STARTUPS?

MATT HARRIS: From my lived experience, the best time to start a fintech was during the financial crisis because fintech companies compete with incumbents. From 2008-2013, incumbents were distracted by existential issues then waves of regulation, and that was an incredibly fertile period for all sorts of consumer and B2B fintechs. Life got harder in 2014 when Jamie Dimon wrote Silicon Valley is coming, and the incumbents started improving their apps and brushing up their offerings in a way that made competing with them more challenging. I have no doubt that post Credit Suisse, post SVB, the rumblings in commercial real estate, the rumblings in the annuity industry, that we’re headed into another period of distraction. Hopefully not a crisis but surely distraction and CERTAINLY re-regulation of incumbents. One of the things that make me most excited about companies that are just getting started and hitting their growth phase now is that their incumbent competition is about to get weaker.

FINTECH STARTUP ADVICE IN 1 SENTENCE

HANS MORRIS: Founders should be brave but humble, and have a very clear picture of what their model should look like, and understand their risks to get there.

BIGGEST FINTECH AI OPPORTUNITY

ANNIE LAMONT: If you have $100m in the bank and you have a business model that doesn’t work, just stop doing what you’re doing, take that $100m, be brave, and start again. When you think about AI generated synthetic identities, you’re going to have a massive fraud issue that’s going to come up with ChatGPT and other AI generated identities, so that world is going to change a lot. There are going to be amazing opportunities to create technologies around identifying fraud that’s going to be critical. Just think what happened when we went from internet mobile mobile virtual, fraud escalated, and I think it’s going to be 10x that.

FINTECH SUCCESS IS NEVER LINEAR

NIGEL MORRIS: The road to success is never, ever linear. The number of people who tell you the story of how they had an idea, the money came in, and shazam, it was a juggernaut and they rode off into the sunset. It never happens. Of our 200 companies we’ve invested in over 15 years, 2 of them have hit their numbers over the first 3 years. The difference between great CEOs and good CEOs is courage. Courage is about standing up for what you believe in, dealing with the ups and downs, looking after your people, and never forgetting where True North is. Fintech can change the world. If we add up the companies QED has had the chance to invest in — Credit Karma, Klarna, NuBank — we’ve touched the lives of 300m people. I’d love to be able to say that when we do another one of these podcasts in 4 years, we’ve touched the lives of a billion people. By partnering and forcing the incumbents to raise their bar.