Venture is over. Fintech is dead. At least that is what the headlines suggest. In reality, there has never been a more exciting time, especially for early stage founders. Fintech’s is only just getting started. So here are my predictions:
#1 — 2023 will be a record year for companies started by repeat fintech founders: this prediction is obvious and incredibly important. How many repeat fintech founders were there in 2010? Trick question! Fintech wasn’t even a term until around 2014. Today, there are hundreds and hundreds of repeat founders who know more about the fintech ecosystem than ever before and are uniquely equipped to start category defining companies. They know what to build, how to build it and who to hire. Given that digital penetration in financial services is still in the single digits, that is an amazing recipe for success.
#2 — 2023 will be the best year ever for pre-seed & seed stage companies to hire top talent: Until mid-2022, everyone was hiring. FAANG / MAMAA and 1,000 unicorns were sucking in huge amounts of talent. Then inflation hit, the Fed raised rates ending the era of free money. Layoffs or hiring freezes hit nearly everyone. The silver lining—If you’re a pre-seed or seed stage company, hiring has never been easier. Candidates have fewer options and you are better equipped to poach from later stage companies, where many employees are depressed because of layoffs and underwater on their equity grants.
#3 — 2023 will see an explosion of Vertical SaaS: One of the big reasons is the infrastructure for starting a vertical SaaS company has gotten so much better. Want to embed payments? Use Moov. Want to embed lending? Use OatFi. Want to embed payroll? Use Salsa. And those are just a few options from companies that I’ve backed over the years. A comprehensive market map would cover 50+ infrastructure providers with many many other options in each of those categories and beyond. Better infrastructure means startups can get to market faster while layering in more ways to monetize with less headcount and capital.
#4 — In 2023, most new fintech companies will be B2B: Many of the iconic companies in fintech in the last decade have been consumer (think of Robinhood, CreditKarma, Betterment and Chime to name just a few). Today’s entrepreneurs seem increasingly focused on B2B opportunities. Hundreds of repeat founders and thousands of fintech employees, many of whom worked at those iconic consumer companies, have now spent a decade or more understanding how the plumbing is broken and they want to fix it. This is not to say there aren’t opportunities in consumer (I’ve talked about where those opportunities are before), but that the balance has shifted to B2B. In fact, even incumbents like Goldman are scaling down their consumer offerings.
#5 — In 2023, multi-stage firms will begin to retreat from Pre-Seed & Seed: Pre-Seed and Seed is a unique stage in a company’s life that is often best served by specialists. Large multi-stage firms entered the seed market, not because they were uniquely positioned to serve those companies, but because they didn’t want to pay absurd prices at Series As and beyond that predominated until mid-2022. Now those multi-stage firms, faced with building a larger stable of Seed bets (many of which recently struggled to raise extensions), are likely to spend more time pursuing attractively priced Series As and Bs. This is not to say that multi-stage firms won’t do Seeds or can’t be amazing partners to the right founding teams, simply that the balance of their investing will begin shifting back to stages where they have historically been most active.
#6 — In 2023, regulatory turf wars will continue: A sad fact about innovating in financial services is that you often have to deal with more regulators than you can count. A typical fintech company may have licenses with 50 state regulators and have aspects of their business overseen by 1 to 10 federal regulators either directly or indirectly via a partner like a Banking-as-a-service provider. Adding to this chaotic regulator stage of affairs are ongoing turf wars, which make company building even more challenging. Who will regulate crypto? The SEC or the CFTC? Who will regulate small business lending? The CFPB has consumer in it’s name but is expanding it’s mandate to cover some aspects of business lending. We will see skirmishes in these areas and more. As always in fintech, a top notch general counsel is a must have.
In summary, there’s never been a better time to start a fintech company! Happy 2023!
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