In the first in a series of articles looking at the venture capital industry in 2021, AltFi hears from five leading investors as to where they will be looking to put cash to work in search of the next fintech unicorn.
Last year, during the global pandemic, many anticipated a tougher time for these firms, reliant on venture backing to reach a sustainable footing. The cash, albeit in a more muted manner, kept flowing though.
While this year coming is still clouded in the fog of Covid-19, new lockdowns and the glimmer of hope in mass vaccination, many anticipate plentiful long term opportunities presented by firms looking to up-end the financial system. In this article, we take a look at where the VCs will be looking to deploy cash.
Ian Connatty, Managing Director, British Patient Capital
“Like many things in 2020, the venture capital industry has continued to move forward, despite adversity. And the challenges 2020 has brought, such as the difficulty of undertaking due diligence on prospective investments, will continue to impact the sector in early 2021, as will a Covid vaccine. How will the trends we have experienced this year influence the investment landscape in the long-term?”
“There are certain things I am confident about. Fintech – not just the consumer challenger banks and payment services providers– but B2B companies that improve underlying infrastructure and legacy systems, will continue to be a particularly exciting sector for the VC industry. Data, and all that it underpins, from cybersecurity to the future of work, as well as quantum technology – tech that harnesses quantum physics to gain performance which is otherwise unattainable – will also be on the agenda.”
“As will ‘impact technology’ and the structural shifts it is waging on the asset class. As the market becomes more competitive, impact and sustainable technology solutions, will continue to play into fund managers’ search for distinction. Distinction has come in many ways, but impact has added a new dimension to that. We expect both LPs and managers to grapple with that next year.”
“The focus on unicorns has continued to hit new heights over the last year. But I ask myself how long this preoccupation will last. Certainly, it is one way to deliver a return (and a good one) – but it is not the only way. In 2021, dragon chasing will be equally important for LPs and VCs alike. Dragons, a company that returns an entire fund, are hard to find – but they are important lighthouses.”
“In terms of British Patient Capital, our focus will remain on selecting best in the class managers. We are optimistic for 2021 and expect the asset class to continue to attract more institutional investors. There is good reason too. On a one- three-and five-year time horizon, European venture capital has generally out-performed US counterparts, and consistently better than European Private Equity, according to Cambridge Associates data.”
“We have £1.5bn still be to be deployed. And we are more ambitious than ever to help more home-grown and fully funded, high growth companies to fulfil their potential to be players on the global stage.”
Rob Moffat, Partner, Balderton Capital
“ESG is a big theme in fintech, as in other sectors. Specifically, in fintech this includes financial wellness: how you help people take control of their money and avoid the 'poverty premium' of expensive debt and banking. We have already made a couple of investments that touch on this area with Wagestream and Cleo.”
“Fintech becoming a containerised SaaS stack. Companies can bring together best-in-class modules in a no-code way to design the specific financial services experience they need. We are investors in some of these best-in-class modules such as Gocardless in non-card payments and ComplyAdvantage in financial crime. We also recently invested in Primer which is an open infrastructure to build payments experiences in a no-code way. The drive of non-financial companies to become fintechs and new standards such as open banking will accelerate this trend in 2021.”
“I expect a lot more innovation to come in insurtech in 2021. In 2020 we had the first successful IPOs from the sector, with Root and Lemonade. These have paved the way for a whole new set of companies to innovate with an efficient modern tech stack, parametric or rapid claims, and underwriting informed by machine learning.”
Tim Levene, CEO, Augmentum Fintech
“We will see a continued shift and focus among venture capital to B2B, SaaS and infrastructure within banking and insurance. That has only been accelerated as a result of what has gone in the past few months which has further exposed technical shortcomings of existing financial institutions who have challenges there.”
“If you look at where are the pain points: compliance, regtech; these continue to be very significant for all financial services. Fintech and incumbent. There are increasing pressures front the regulator to address these issues.”
“Those companies that can really fix and solve these problems will come into their own.”
“Digital currencies are interesting too. We’ll see more focus on DeFi and the mainstreaming of crypto.”
Ed Lascelles, Partner, AlbionVC
“2021 will see Bitcoin and other cryptocurrencies enter the mainstream as Revolut, Paypal and Square all launch services to enable their customers to pay third parties using crypto. With a rapidly maturing regulatory environment and governments getting ready to launch stablecoins, we believe that 2021 will see a huge acceleration in the use of digital money. In 2021 will see the continuation of positive Bitcoin price momentum, supported by renewed retail investor interest and further institutional investor portfolio allocations.”
“The ultra loose monetary policies combined with fiscal stimulus spending will further support digital assets, with the trend spilling beyond Bitcoin into other cryptocurrencies such as Ethereum and Ripple.”
“The ever maturing ecosystem will accelerate the trend of decoupling duties such as between custody, clearing and settlement responsibilities leading to greater resemblance with traditional finance market infrastructure. This in turn poses scope for further innovation and product offering for best in class security, audit and insurance solutions.”
Steve Gibson, Partner, Element Ventures
“In 2021, we’d expect to see the rise of B2B fintech offerings that fundamentally reimagine the way large and small businesses – particularly SMEs – interact with their various financial service providers. Why, for example, should banking and accounting happen in disparate pieces of software, when they represent the same data? Why can’t invoice financing be automated inside everyday workflows?
“We’re seeing a number of emerging tech firms that are securing funding to solve these problems, and winning projects with incumbent banks to roll-out their nascent technology. Lloyds Bank is rolling out Minna Technologies’ subscription management function, and American Express’ acquisition of Resy, a restaurant reservation app, was indicative of banks looking to diversify their offerings and become marketplaces and platforms - expect to see more of this next year, as banks turn to B2B fintechs to help widen their service offerings.”