Zeynep Yavuz/General Catalyst
Fintech VCs’ predictions for 2024
Fintech underwent a tough period in the first half of 2023 followed by a tentative and budding recovery in the second half Here's what investors are expecting this year
Venture capital has enjoyed a continued upward move into the mainstream over the past decade, with more and more investing in the asset class.
Fintech startups have been the standout category for the investment of VC dollars over this period with estimates that a quarter of all VC cash poured into startups goes to fintech.
At least, that is the story up until two years ago.
Despite a growing 'visibility', fintech venture capital volumes - the amount deployed by investors into companies - fell by 48 per cent in 2023 compared to 2022, with $51.2bn dollars invested into the sector across 3,973 deals from Seed through Series I, according to Innovate Finance.
While the numbers are stark, a more zoomed-out viewpoint shows a broadly growing market still (with a covid-induced spike as well).
Debate rages as to whether the fintech boom catalysed a much longer-term bullish case for fintech investment, or whether the multitude other avenues for venture investment from space tech, climate tech and yes AI (tech?) have popped the bubble.
In this article, we hear how VCs with a keen interest in fintech see the market going...not everyone agrees!
Tim Levene, CEO of Augmentum Fintech - 'Improving sentiment'
“2024 will see a continued return of activity to the fintech market as companies seek funding to recharge their runways and support growth. Many fintechs have spent the past 12-18 months adjusting to the new world of stubbornly high inflation and a high-interest rate environment.”
“At the same time, investors have continued to sharpen their focus on metrics which demonstrate that fintechs can continue to scale but in a manner that is more capital efficient and ultimately profitable.
“It is also highly likely that we will continue to see an increase in M&A from strategics, 'at scale' fintechs and PE.”
Zeynep Yavuz, Partner, General Catalyst - 'Banks up their game'
"2023 was the year of real-time local payment methods with UPI and PIX gaining super adoption rates in India and Brazil, and FedNow being introduced in the US. I believe 2024 we will see governments adopting CBDCs to further promote financial inclusion and revolutionize cross-border payments."
"Almost 1/3 of the unicorns in Europe are fintech & crypto companies mainly operating in their local markets. I believe 2024 is an important year for European governments to start thinking about the IPO markets in Europe so these local winners stay European companies and continue to contribute to the European tech ecosystem."
"I believe 2024 will be the year traditional banks step up their game to catch up with neo-banks. Traditional banks have diversified revenue streams (payments, lending, deposits) and they emerge stronger from a higher interest rate environment. I believe we will see them increase their investments to digitize their legacy systems."
Kevin Chong, Co-Head, Outward VC - 'Cautious optimism'
"90 per cent of VCs agree that there will be an uptick in funding next year - the cyclical model we’ve seen historically after recessionary periods will continue."
"Scalability, even in the absence of rapid growth, will be the driving factor behind successful companies in 2024 - founders that resisted the temptation to chase glitzy valuations and focused on long-term value creation will be the firms that achieve success next year."
"More funding discipline from investors across the board - following the inflated valuations we saw peak during 2021 and the ensuing downmarket that followed, VCs and institutional investors will be more scrutinous, particularly in the middle to late-stage rounds. Fintech growth models and measures will be long-term by definition, rather than by exception - short-termism is dead as investors realise that unpredictability and risk calls for a more considered and sustainable approach to their portfolios."
“This coming phase will see leaner, more resilient start-ups matched with leaner, more resilient investors. We will see the drivers of innovation shift from mobile and cloud computing to data and profound advances in AI."
"We will see a convergence of sectors where start-ups are built on the intersection of climate, education, financial services, and health. This coming phase could well be the best time for start-ups and VC investors in a long time. What gets built in this coming phase is much more likely to endure.”
Livia Moore, Partner, Antler - 'The bloodbath will continue'
“Although the blood bath isn’t over yet, and we’ll likely - sadly - see a lot more companies going bust, the tech winter is starting to thaw and there is optimism on the horizon.”
”This is general for VC, but for the very earliest stages where we at Antler operate, I predict we’ll continue to see a strong anti-recession trend with top talent continuing to make the choice to build their next company during a downturn.”
“The mega-trends within climate tech and AI will persevere in 2024, but I believe we’ll also see the first examples of AI companies failing to get traction and going bust in 2024.”
Dan Chaplin, Partner, Dawn Capital - 'SME financials ripe for disruption'
"Financial management tooling for mid-market companies will be an area to watch in 2024."
"Small businesses have become much better served in recent years and now have a good range of choice when it comes to managing payments, books and records. But as they grow in scale and organisational complexity, many companies find that the viable range of vendor offerings becomes much narrower. This is a clear opportunity for investment."
"We will also see an unbundling of the ERP stack into best-of-breed modules offering consumer-grade UX designed for the mid-market. Here, financial areas including treasury, spend management, and planning are ripe for further innovation, automation, and realising benefits from AI next year."|
Olga Shikhantsova, Partner, Speedinvest - 'AI Wealth management'
“For more developed nations in 2024, an interesting trend continues to be wealth management and wealth tech. It is in these regions that people will experience a huge generational wealth transfer. And of course, we cannot not mention AI.
"AI will make many processes, which work in the background in the financial sector, more efficient. Linking this back to my point on wealth - AI will be central to improving financial and wealth advice.”