Overview
While I will discuss new fundings this week, perhaps the bigger question being pondered within the VC community is portfolio resilience. This is of course for those that have weathered the demise of companies in web 1.0 or post the financial crisis, nothing particularly new, but as many backed companies were founded well after these events by entrepreneurs who may have barely experienced them, it will certainly be something being discussed far and wide and may lead to a significant shift in focus from external to internal portfolio engagement for the rest of the year.
At the end of the day of course, runway and the preservation of cash will be paramount, but VC and entrepreneurs alike need to start to consider what the consequences will be of stubborn high inflation, a sustained period of weak growth, and rising unemployment, against a background of changing demographics, market infrastructure change, and geopolitical unrest. For some types of ventures, notably those with a strong connection to addressing supply chain challenges, hard times can be good times, but moments like these quickly bring to light the weakness of ventures for consumers, smes, and enterprises that are really “nice to have” rather than “must have” products and services. In other words, ventures that have solely benefitted from optimistic growth and momentum will struggle.
While I am not fully convinced that we are due for a repeat of the post 20’s and early 70’s crisis type depressions in the value of financial assets, particularly because of the level of liquidity, and the way that central banks now respond to financial crisis, the way that public market valuations of even the most resilient companies has shifted is certainly suggesting that a fast bounce back is increasingly unlikely and that this year and next will represent a very choppy and challenging set of circumstances for Fintech firms and their backers to navigate.
One would expect the natural result will be tougher funding conditions for the earliest stages of venture funding, but on this occasion we may also witness far more corporate transactions (at lower prices) and more larger fintechs becoming major consolidators in their own right too. This will be especially true in situation where the fintech firms are already scaling profitably and don’t have to deal with high cost, covenant oriented, sub-prime lending facility costs.
Fintech Solutions for Financial organizations: B2B Model
Featuring: Narmi, NovoPaymen, Upvest & Capintel
Proprietary and Crunchbase Data
Commentary: What’s been going on
Even in weak markets, the size of A and B funding rounds is staying strong. How this is related to actual valuation is not clear, but VC firms remain prepared to entertain backing API first FS empowerment models in investment, banking and payments. Money is however going to work with more mature companies and with a definite view that certain types of financial and fintech businesses represent large enough addressable markets to scale. Of the deals executed, it was those that were focused around enabling investment rather than banking that caught the eye, with Capintel’s series A suggesting that the Canadian scale up is going to have some success with their front office platform across the border. While what they offer doesn’t appear to be a unique vertical integration to those of us operating inside of a MIFID2 reg structure, they have some excellent tools for creating compelling and beautiful proposals from what I have been able to review.
Fintech Solutions for Small & Medium Sized Enterprises: B2B Model
Featuring: Airbank, Keo World, Amnis Treasury, Paycargo, Settle
Proprietary and Crunchbase Data
Commentary: What’s been going on
Thematically, venture capitalists continue to believe that SME firms need help in managing operational efficiency across their business, and particularly when it comes to managing new types of supply chain challenges that come with building scale through digitization. The best example of this was the funding received by Paycargo, which was the largest pure equity financing of the week. Paycargo is creating a full stack logistic platform that promises to help SME reduce their wait times for cargo release.
VC firms also are supporting firms that have come to realize that the economics of providing direct financing solutions alongside software makes a lot of sense. Thus, one sees firms like Settle, and KEO, both of similar size and duration getting support for their propositions which are all about bringing cash flow and supply chain management via an integrated SAAS platform with credit financing.
Fintech Solutions for End Consumers: B2C Model
Featuring: Wahed Invest, Param, Homelight, Exporo, Foxstone, Earlybird and Fr33m3n
Commentary: What’s been going on
The consumer or b2c model segment remained the most active last week in deal numbers, dominated by the huge funding for Param, a successful e-money platform venture built in Turkey that is now going to try to expand through a slightly different business model to the UK, undoubtedly looking to target a particular demographic. The structure of Param’s offering isn’t unique, but it does bring together a lot of the best features that are normally available within a well-constructed e-money program, and this probably has been a factor in its success. One can say that the same principles, in a different sphere, i.e. investment have been applied by Wahed, in the evolution of their halal compliant digital asset platform. While I can’t see a single standout feature, the combination of the target segment, and the overall platform design appear to underpin growth and funding.
I don’t talk about it often but real estate ventures, esp. in a high inflation environment can often become interesting as people often consider physical assets a better bet in such conditions. Rising interest rates of course will temper demand, but nevertheless the evolution of the democratization of the asset class continues. This is particularly true in mainland Europe, and in the DACH region specifically where both Foxstone and Exporo, businesses that have been going for more than 6yrs each received more funding for their crowdfunding platforms. Both platforms are increasingly looking toward becoming direct lenders themselves alongside platform investors, and this type of model seems to be increasingly common globally as underscored by the Homelight’s Series D.
The final theme of this week was the family, and particularly financial services that are designed to support a better financially educated and collaborative family. The timing of these initiatives makes a lot of sense as many families will struggle with higher cost of living in essential items and thus rein in discretionary spend. Applications like Earlybird and Fr33m3n not only try to do this through their platform designs, but also through an account management and content service process that allows parents to introduce their children to financial matters.
