Investor Advice for Fintechs

It’s not difficult to think of several key inflection points in recent financial history, each presenting their own unique opportunities and challenges to the market at the time. These major events - from the dot-com bubble or 2008 financial crisis to record-breaking fintech growth in 2021 - have each had a significant and lasting impact on the industry. Through these extremes, and the more stable moments in between, there are a few key operating principles to keep in mind when thinking about attracting investors.

We recently spoke with Mike Zappert, partner at TPG, and Dan Rosen, partner at Commerce Ventures, at FinTech Festival about what advice they’d offer to fintech leaders looking to raise funding in today’s market.

Understand the context you’re operating within. Over the past 10 years, fintech as a venture category has moved from taking 5% of funding dollars to 15% at the peak of 2022. Dan explained, “the dominance of fintech probably rose artificially as a percentage of venture during the low interest rate environment, and I think that’s going to return, maybe not to 5%, but maybe to 7, 8, 9% of venture dollars.” It’s important to recognize that all venture funding is down, fintech included, over the past four quarters. Set expectations and growth goals accordingly.

Be disciplined and go back to the basics. “Any time there is a big correction or recession is actually when some of the most interesting companies are founded,” Mike shared, “and with that comes a lot of discipline as it relates to how you run your business, how you think about scaling, and how you think about good economics.” Companies that are thoughtful about their cash-planning and continue to invest dollars to scale will have a greater chance of coming out of this challenging market in good health.

Investors are looking at both the metrics and the why. Banks and investors are still wanting to spend money, intelligently, on innovation. While the goal is to achieve then maintain profitability, investors understand that not all fintechs will be profitable for a while. Both Dan and Mike agreed that what investors will look for is good economics and the rationale behind any cash burn. Cash burn for growth will be viewed differently than those still operating in the “burn for the sake of burn” mindset.  

Focus on the gaps. There is still a lot of opportunity within the fintech space. Leaders that focus on closing a persistent and notable gap will have an advantage as they look to secure funding.