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2021 Fintech Developments in Venture Capital

Right now, a substantial amount of capital is chasing the Fintech landscape. What does that mean for founders?

Fintech is on the cusp of revolutionizing markets across the globe.

Specifically, legacy markets.

Breaking into legacy markets, such as banking, is proving to be a competitive landscape rich with opportunities to create value for consumers and VCs.

The great news is all of this value should translate into a much better consumer experience. Ultimately, everyone is fighting for the same consumer, and they want to ensure their experience is superior compared to the competition.

In a recent episode of Startup Success, I spoke with Dmitry Norenko, CEO and Founder of upSWOT, and Igor Ulis, Chief Digital Officer of Liberty Lending and Managing Partner at Common Ocean, about how the landscape for fintech startups is changing daily, along with how they are securing funding from VCs.

VC Landscape for Fintech

For most startups entering Fintech, venture capital funding is particularly important and exciting at the same time, as the impact of innovation in the space grows and adoption of technology in financial matters accelerates. While other industries have to fight for investment, Fintech has had the opposite experience.

Right now, a substantial amount of capital is chasing the Fintech landscape. What does that mean for founders?

Fintech’s Upper Hand

Fintech founders are living in an unprecedented time. There is an incredibly high demand for Fintech solutions by consumers, and venture capital firms across the world are clamoring to back promising startups with funding.

This means a greater degree of freedom in terms of who founders decide to take capital from, and under what terms. Moreover, we’ve seen an uptick in the number of founders wanting more than just a check. They’re also seeking ‘Smart Money’ deals, meaning investor attributes beyond just the capital offered on the table. These attributes, such as access to subject matter experts, certain niche markets, talent to hire and relevant relationships are making the difference between with which investors startup decision-makers choose to partner.

“Cash supply is rich, the number of companies that cash is available to be deployed into isn’t necessarily sufficient.”
– Igor Ulis, Chief Digital Officer of Liberty Lending and Managing Partner at Common Ocean

What are Venture Capitalists Thinking?

As valuations skyrocket for Fintech companies amidst record liquidity in the VC ecosystem, we’re seeing certain deals that would never have occurred under normal circumstances. VCs are taking larger risks on revolutionary technology, including a high amount of dry powder (i.e. investable capital) they need to put to work. Accordingly, there is competition for strong deals, which is driving both entry and exit valuations for strong startups with traction in the marketplace. VC’s are committing capital to these companies, many of whom have only been in operation a short time, at valuations based on 3-5 year projections of runway and thin, if any, feedback from the marketplace.

With the unprecedented level of competition amongst various venture capitalists, most are thrilled to put their hat in the ring and partner with strong Fintech startups. Like with any product, competition is a telltale sign you’re onto something and on the right track, so although fears of overheating abound, it’s a net positive for the sector in general.

“Are there deals that may turn upside down at some point in the future? Absolutely. But I believe that’s why they call it venture investing.”
– Igor Ulis, Chief Digital Officer of Liberty Lending and Managing Partner at Common Ocean

Innovative Fintech Use-Cases

Banking is an area where Fintech is shattering technology and funding glass ceilings. Breaking into this legacy market has been a core goal of the Fintech sector for years now. Innovative solutions that reduce friction, improve efficiency and recast the customer experience (such as upSWOT) are proving to be competitive in a landscape rich with opportunity to provide value to consumers who have long suffered from the apathy and slow pace of traditional legacy players. This is especially true as the COVID pandemic has accelerated the shift in consumer tastes and perspectives dramatically over the past year.

Let’s dive deeper…

Today, consumers don’t want to go into bank branches, they don’t want to touch papers or ATM screens, and they sure don’t want to stand in lines. They’re also not interested in small talk which, at a bank, invariably turns to a sales pitch for financial services they don’t need. They want to communicate with the banks from the convenience of their own home with no delay via simple and clear interfaces.

In short, banks need to change. If they don’t, they will die – just as so many did 25 years ago, only to be taken over by the top 10 national banks.

This is where Fintech companies are coming in. They’re helping these legacy companies see the value of new technology, present new ways to cut costs, simplify processes, improve customer experiences and ultimately become more innovative. What will be fascinating to see is whether large banks, who are clearly unable to match the speed and creativity of Fintechs, will kick off a consolidation wave in the sector as they seek to bring these advantages in-house post-pandemic.

“For any startup, but especially for Fintech, timing is the most crucial part of business success.”
— Dmitry Norenko, CEO and Founder of upSWOT

Other Areas of Fintech Innovation

Most exciting about the Fintech space is its broad applicability. A common saying amongst Fintech founders is “every company is going to eventually be a fintech company” because the innovations and value provided don’t stop with one industry. Instead, and perhaps unique among startup sectors, it spans virtually all other sectors and the technology it is developing can provide sometimes life-saving value for those who use it.

  • Fraud Prevention and Detection
  • Predictive and Algorithmic Trading
  • Customer Service and Recommendation
  • Network Security

Opportunities in Fintech continue to rapidly evolve as competition thrives amongst startups and the VCs who fund them. As exciting as the last five years have been in Fintech, we think it’s only the beginning.

To listen to my full conversation with Dmitry and Igor about the Fintech market and VC investment, visit our podcasts section for this complete Startup Success podcast episode.