Last year, more than 20% of venture dollars went into fintech startups globally, according to CB Insights. Equally notable: one-third of all unicorns created in 2021 were fintech companies.
The 2021 Matrix Fintech Index reported that public fintech companies outperformed the market by 3x, driven in large part by favorable IPO debuts, SPACs, and increased adoption of digital payments and e-commerce, BNPL in particular.
Even though those companies saw a draw-down of approximately 30% in the year’s closing months, investors are eagerly looking for new opportunities: in the final accounting, VCs funded private fintech startups to the tune of $134 billion, Crunchbase found.
This is a great moment to launch a fintech startup, but which firm is best to pitch if you’re an early-stage embedded finance company based in Latin America? Who might be your best bet if you’re a later-stage B2B payments company in the U.S.? To give TechCrunch+ readers specific knowledge about what fintech investors are looking for right now and what you should understand before approaching them, we interviewed ten active investors over the last couple of weeks.
Spoiler alert: crypto came up more than once, and LatAm is hot, hot, hot when it comes to investor interest. Each respondent was kind enough to let us know how they want to be pitched, and for grins, one shared an example of a cold e-mail that worked.
Here’s who we surveyed:
- Anish Acharya, general partner, a16z
- Christina Melas-Kyriazi, partner, Bain Capital Ventures
- Ethan Choi, partner, Accel
- Pete Flint, general partner, NFX
- Munish Varma, managing partner, SoftBank Investment Advisers
- Nigel Morris, managing partner, QED Investors
- Tyler Griffin, co-founder and managing partner, Financial Venture Studio
- Nikhil Sachdev, managing director, Insight Partners
- Mark Fiorentino, partner, Index Ventures
- Sheel Mohnot, general partner, Better Tomorrow Ventures
Anish Acharya, general partner, a16z
Fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
Overall, there are two ways to look at fintech — the narrow view of the space is as a set of financial services delivered via technology, a much broader view is fintech as a new business model for every internet company. The latter opportunity is 10x larger than the former and the infrastructure that supports this change could yield some of the biggest yet-to-be-built companies in fintech. We’ve only just begun.
The domain is still technical enough that founders can get more value from experience and expertise and where many generalist investing patterns may not hold. For example, exponential growth in consumer products is almost always a reason to invest, except in consumer lending, where giving away money always has product-market fit and growth matters less than one’s ability to get repaid. So, investors with real expertise, rather than those who may be experiencing fintech FOMO, have the ability to pick and win more of the right deals.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
I have a belief that the products are becoming the primitives of financial services — that the traditional financial products we think of (banking, lending, insurance, payments) can now be integrated via a single line of code, which gives founders an opportunity to create higher-order and more interesting consumer experiences. As we look forward, it’s no longer good enough to just offer a standalone product; the most compelling value propositions will rethink and remix these primitives in unexpected ways.
What criteria do you use when deciding which companies to invest in?
Successful founders in the financial services domain have a rich history of understanding the patter
ns of the past as a meaningful competitive advantage. We care a lot about how authentic the founder is to the problem they are solving and how much work they’ve done to understand the history of the domain — what’s worked, what hasn’t and why their approach is different.
What markets (in and/or outside of the U.S.) in particular are you as a firm drawn to, and why?
Being rooted in Silicon Valley, we increasingly view it as a set of networks that exists to foster new thinking versus merely a geography that founders are building within. We’re seeing a lot of activity in budding fintech ecosystems across LatAm.
Additionally, many markets that may have been considered “small” (like my home country of Canada!) present rich opportunities for fintech. For example, the LTVs are enormous for categories like wealth management, where a founder can build a multibillion-dollar business with just a few million of the right customers.
If a startup wants to pitch you, what’s the best way?
Let’s talk! It’s the best part of my job. (Email preferred.)
Christina Melas-Kyriazi, partner, Bain Capital Ventures
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
Fintech reached a true turning point last year in that consumers now are hugely accepting of new forms of payments and banking, such as instant money transfers, buy now, pay later, online-only banks, and so on. So the demand for backend fintech technology to power this shift to app-based payments and banking is huge, and thus more and more startups are inventing new ways to move money on the backend and to disrupt existing infrastructure. We did see a lot of competition for the best deals, but, thankfully, BCV has a long history of supporting fintech leaders, from big names like GoCardless, BillTrust, Pleo, AvidXchange and Acorns, to newer success stories such a Finix, Rightfoot and Orum, so we are viewed very favorably by fintech founders.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
Bain Capital Ventures is excited about a number of different themes. We continue to be bullish on embedded fintech, where a customer can sign up, fulfill, and experience a financial product within the customer journey of another distribution platform. We see opportunities within embedded payments, banking, lending, insurance, and investing that can take advantage of this new distribution and access to data. We’re excited about companies that make B2B payments easier and more seamless. People and businesses still don’t get paid what they’re owed, on time, especially in new and growing parts of the economy, like freelancers, creators, or cross-border workers. We’re excited to see companies build and take advantage of new payment rails — whether that’s account-to-account or closed-loop payment systems, or crypto-based/decentralized protocols that enable new business models and seamless money movement. Finance will continue to be democratized, and more startups will give individuals access to alternative assets, private markets, and financial upside that has historically been reserved for a small subset of the population.
What criteria do you use when deciding which companies to invest in?
The criteria really depends on the stage of the company, but at the early stage, we’re really focused on the team, product and market. I’m looking for founders who have an unfair advantage in a problem space and have a deep empathy with the customer problem.
What markets (in and/or outside of the U.S.) in particular are you as a firm drawn to, and why?
Outside the U.S., we invest in Europe and Latin America. In LatAm, we’ve seen an explosion of activity in the fintech sector recently. We’re really excited by the quality of the entrepreneurs and the untapped market opportunity there, and we believe it’s still early days.
If a startup wants to pitch you, what’s the best way?
Send me an email at cmelaskyriazi@baincapital.com.
Ethan Choi, partner, Accel
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
On the product side, we’re seeing fintech permeate every industry and product category, and so the definition of fintech has fundamentally broadened. We’re seeing more workflow layers have been added to core payment capabilities, both on the consumer and B2B side. BNPL, for example is inherently programmed credit, while on the B2B side, we’re seeing categories like AP automation and expense management gain lots of traction.
On the investing side, deals were definitely more competitive and valuations certainly reflect that, even despite a correction in public fintech comps.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
We’re very excited about crypto and the impact that blockchain is having on fintech. Over the last few years, we’ve seen how crypto has expanded as an asset class beyond Bitcoin to stable coins and tokens that deliver incentives to decentralized communities rallying around specific projects and products. While crypto has not yet reached the point of being used as daily currency or payments, we are bullish on its longevity and utility for certain consumer and B2B use cases.
In terms of an overhyped sector, a handful of B2B card issuing and payments companies have experienced tremendous top-line growth over the last few years, but in some cases have been built on negative or razor-thin contribution margins. We’re watching closely to see how well these businesses have underwritten credit, and if they can expand to sell other more profitable product lines to their existing customers.
What criteria do you use when deciding which companies to invest in?
Our most important criteria is how much we believe in the team. We seek founders that have a deep and authentic understanding of the problem they’re solving and have a unique view on how to solve it. Fintech is also a very specialized industry, especially given regulation and risk management, and so it’s helpful when founders have had some background financial services.
We focus on picking the right categories that we believe are growing rapidly and durable, including core payment processing, banking-as-a-service, card issuing infrastructure, B2B payments, P2P payments and consumer investing, among others. Finally, we look for some unfair product or distribution advantage that we believe can compound over time.
You’re definitely branching outside of the U.S. What markets in particular are you as a firm drawn to, and why?
2021 was a monster year for Latin American fintech. Due to a confluence of progressive regulation from central banks, the pandemic driving mass digital bancarization, and entrepreneurs being able to access growth capital beyond regional funds, Latin America finally received the capital that the region deserved. Thanks to our investments in Pismo (banking-as-a-service provider), Higo (B2B payments provider), Atrato (BNPL player in Mexico), Flink (consumer investing app), and Nuvemshop (e-comm platform and payments), we’re seeing fintechs disrupt large incumbent banks and financial institutions and drive better financial inclusion for the broader population.
We believe 2022 will bring a similar fintech boom to Southeast Asia. The region saw an explosion of e-commerce driving retail and B2B digital payments, which were enabled by companies like Xendit. Through our investment in Pluang (a Jarkata-based investing super app), we’re seeing heavily unbanked populations coming online financially for the first time and learning how to invest, and thanks to our investment in Axie Infinity, we’re seeing the region become one of the fastest adopters of cryptocurrency.
If a startup wants to pitch you, what’s the best way?
While we try to be responsive to all pitches that come in via email or LinkedIn, the best way is to have a mutual connection make an introduction.
Pete Flint, general partner, NFX
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
More and more B2B opportunities are attracting attention — these are either B2B infrastructure or platform companies or fintech-enabled marketplaces or SaaS-enabled marketplaces where their primary customers are businesses (SMB to enterprise). Many of the deals in top companies in these areas were very competitive. Crypto and DeFi are still very much in their infancy. General B2C fintech is now much harder, although there are some interesting vertical solutions, CAC is far too high due to competition and retention/LTV low. Also, exchanges and their very strong network effects are doing very well and competitive at later stages, but in this sector, it is much harder for newer startups to get going without a really breakthrough idea.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
Probably most excited about B2B fintechs or B2B fintech-enabled marketplaces today. Some B2C fintechs with the exception of established online insurance companies are overhyped.
What criteria do you use when deciding which companies to invest in?
We only lead investments at the pre-seed and seed stage. Beyond the stage criteria, founding teams also need to have multiple complementary skill sets to cover the needs of building a category-defining fintech, which can be quite complex. For example, teams with great technical skills, financial expertise, go to market, etc. We look for the potential for building network effects into the business (or help them engineer them) to ensure long-term defensibility. Most of all, we are looking for founders that see things that others do not and have the drive and persistence to build a large category-defining business.
What markets (in and/or outside of the U.S.) in particular are you as a firm drawn to, and why?
In addition to the U.S., we are drawn to Israel for its global outlook and technical talent; LatAm for its population scale and growth, entrepreneurial talent and opportunity to redefine how commerce is performed in the region; and Europe for its large consumer and business economies. Other markets are interesting, but we are less active there.
If a startup wants to pitch you, what’s the best way?
Complete your company profile on https://brieflink.com/ and send to qed@nfx.com or pete@nfx.com.
Munish Varma, managing partner, SoftBank Investment Advisers
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
We continue to see broad-based disruption across all financial services and continue to invest across several core verticals where we see opportunities, including neobanks, alt lending, payments, wealth tech and others. Investments in the crypto ecosystem went mainstream in 2021 and attracted more attention from institutional investors. We’ve been looking more closely at this space as well and made a few investments in particular companies focused on compliance solutions like Elliptic, and the infrastructure layer, such as FTX.
The heightened level of funding has increased competition, especially for high-quality companies. We’re privileged to have partnered with some of the most promising fintech companies like Klarna, Revolut and Chime. We have also evolved our strategy for Vision Fund 2 to focus on backing companies earlier, as well as established market leaders.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
We believe that fintech is a growth enabler that permeates across all levels of economic activity. This is exciting because if you are in a segment that has access to data around financial transactions and history, there are a lot of adjacent verticals you can branch out into. We’re also closely monitoring the web3 space. The core principles of ownership, governance and incentive alignment carry huge potential to create a decentralized financial ecosystem.
What criteria do you use when deciding which companies to invest in?
We have several considerations when evaluating potential companies: exceptional founding teams with deep domain expertise who can attract talent to their mission; tech-enabled businesses that are solving significant pain points for consumers or businesses; sound business model and growth; a large aggregation of data to leverage with AI and ML; sustained and meaningful engagement from their customer base – how much of their financial life does a user trust with the platform?
You’re definitely investing globally. What markets in particular are you as a firm drawn to, and why?
By our nature, we are a global investor looking for the highest quality companies in the world, wherever they come from. At a high level, fintech provides services to those who did not have them before, at low cost and in a frictionless manner — and that principle can be widely applied regardless of geography. We invest in established markets like the U.S. and EMEA and are excited to see high-growth markets like India and Southeast Asia, which were previously underinvested and overlooked, developing healthy ecosystems for world-class fintech companies.
If a startup wants to pitch you, what’s the best way?
You can find me on LinkedIn and feel free to reach out directly.
Nigel Morris, managing partner, QED Investors
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
QED invested in fintech before it was even a thing 15 years ago. We’ve seen the fintech VC landscape steadily professionalize over the past five or six years, and that has been reflected in the amount of funding pouring into the space on a global scale. Average deal sizes and mega-rounds have both been on the rise, but the time between a company raising rounds has started to decrease.
All of those trends radically accelerated in 2021, and their effects will linger throughout much of this year even if valuations do begin to slowly decrease in the second half of 2022, as I predict they will. The step function to digital poured fuel on an existing fire and deals are more competitive than ever before. Term sheets are being issued in days, not weeks, and an average Series A fintech deal today is valued at what an average B round would have been just a couple years ago. It has led to incredible returns for our back book and legacy funds, but it has also forced us to stay nimble to react to the opportunities ahead of us. By going to school and learning as much as we can, we feel like we’re in a much better position to evaluate deals with exploding term sheets when they come across our desks.
With so much money pouring in, the talent attacking the biggest problems is better than ever before. Founding teams are stronger and TAMs are bigger.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
There are so many things to be excited about in fintech today, from crypto and ESG to proptech to embedded finance. Fintech has the ability to be transformational in the way people live their lives. We’ve seen the impact that having access to your earned wages in almost real time can provide to hourly workers around the globe with QED portfolio companies like Wagestream and Refyne. Last week, another QED portfolio company, Current, announced a high-yield saving account with a 4% APY. This week, Milo announced a crypto-based mortgage.
What criteria do you use when deciding which companies to invest in?
We are always excited when we see talented entrepreneurs tackling big problems with multiple routes to goal. The level of talent today is at an all-time high. That’s not to say there weren’t incredible entrepreneurs 10 years ago – there absolutely were – but it’s even more noticeable today. QED is solely focused on financial technology, so we look for companies that are either pure fintech plays or, more increasingly, businesses that have a financial technology element that can wrap around the core idea.
QED is also fanatical about unit economics and we like to see founders that have a clear sense of their numbers and how they will generate income. Many generalists today have deeper pockets than QED, but we’re proud to provide the best advice you can get anywhere in fintech. That comes from more than 250 years of combined operator experience in building, running and scaling companies. For that reason, it’s important to work with founders who are receptive to learning and accepting advice rather than those needing money only.
What markets (in and/or outside of the U.S.) in particular are you as a firm drawn to, and why? Besides LatAm of course!
QED can say it is truly a global VC today. The majority of our investments over the first decade were in the U.S. in businesses where we had deep operational expertise from our Capital One days – like consumer lending, payments and data analytics. We first started investing in the U.K. and Europe out of Fund II in 2012, and we made our first investments in LatAm in 2015 from Fund III when we were early investors in Nubank.
In 2020, we hired our first partner to focus on India and Southeast Asia – we’ve now made five investments in India – and just last week we hired our first two investment professionals to invest in Africa, the last jigsaw puzzle piece in making QED a global firm. Since starting QED in 2007 with Frank Rotman, QED has invested in more than 170 companies across 14 countries worldwide. Today, QED counts 23 unicorns in its portfolio, including eight from outside the U.S.
If a startup wants to pitch you, what’s the best way?
The first step is always building a relationship with members of the QED investment team, even before you’re ready to raise. We’re passionate about helping entrepreneurs build big, enduring companies, so please reach out to members of our team to see how we can add value and offer guidance. When you’re ready to raise, we’d love to welcome you to pitch before our investment committee, but be prepared for a robust and honest discussion rather than just talking through your deck uninterrupted.
We have also started hosting monthly meetups where entrepreneurs can meet members of our team and network with like-minded founders. We held meetups in New York, D.C., San Francisco, Miami and London last fall, and we’re excited to expand this to include the likes of Saō Paulo and Mexico City later this year when it’s safe to host in-person events again. We have unmatched pattern recognition and we’re excited to help talented founders overcome problems they may not even know exist yet.
Tyler Griffin, co-founder and managing partner, Financial Venture Studio
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
Deals have been significantly more competitive. As one of our partners mentioned on a call recently, “$20 million is in the new $10 million.” There is a massive amount of capital chasing a limited number of exceptional deals. The biggest changes occurred in the later-stage and growth rounds, where demand softened due to public market turmoil. Great deals were still getting done, but we saw that mid-tier companies were struggling at those stages. Given the recent snapback, it’s just too early to tell how that trend will play out for the rest of the year.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
Everything is getting us excited! We continue to think that the opportunities to innovate in U.S. financial services are unbounded. I am especially excited to see that there has been a bit of a renaissance in asynchronous payments, which represents my background and I think has enormous potential. The NFT market and related businesses are pretty frothy right now, but the underlying technology is powerful. Investing in the right business could still yield astonishing returns.
What criteria do you use when deciding which companies to invest in?
Maybe the more interesting answer to this question is what we don’t consider: TAM. In our experience, many of the best companies focus on niches early on and then use their success in solving an acute problem to expand out to cover additional problems their customers face. It’s easy to pass over these founders because the idea is too small, but we like to think we can see the broader vision in some of these cases.
What markets (in and/or outside of the U.S.) in particular are you as a firm drawn to, and why?
We have always been drawn to consumer; we’ve had a lot of success in that realm, and that’s Ryan’s and my background. With our recently announced new partner, Cameron Peake, however, and her experience running Azlo, we’re looking to do more B2B and enterprise deals.
If a startup wants to pitch you, what’s the best way?
Email us! We also run an application process twice a year, with the next opening in May 2022. Founders can visit www.finventurestudio.com to get a better sense of the program and for more information.
Nikhil Sachdev, managing director at Insight Partners
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
Fintech investing picked up substantially in 2021. We see this change as being driven by four factors, the first being that there have been more successful public offerings across the fintech space in 2021, with more anticipated in 2022. These big outcomes and returns are drawing more attention to the space and fueling additional investments. Second, investors are realizing that the end markets across fintech are massive and, in many cases, significantly bigger than we realized. This is driving strong sustained revenue growth for many of the companies innovating in the sector. Third, COVID has been an accelerant to technology adoption broadly, and that is certainly the case for fintech as well. Lastly, the opportunity set is global – we are seeing fantastic fintech companies emerge and scale across all corners of the world.
From an investor’s perspective, the competition for fintech deals has certainly increased, however, Insight’s deep domain experience in fintech and software, combined with a founder-first mentality and our in-house scaling engine, Onsite, saw us often edge out the competition. We are very excited to continue working with talented fintech entrepreneurs for the decades to come.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
There are a lot of exciting subcategories within fintech. At Insight, we take a keen eye to fintech infrastructure companies that sell largely to enterprise or developer customers. These startups look like software companies and tend to have high retention subscription or usage-oriented business models and high margins at scale. We are also spending a lot of time looking at payments, fintech “super apps” that are scaling across the globe, and crypto / crypto infrastructure.
What criteria do you use when deciding which companies to invest in?
Insight looks to back software companies that are scale-ups – high-growth software companies that have accelerated beyond the startup “do I have product market fit” phase and need sophisticated and tailored go-to-market expertise and capital to support their growth. A few qualifiers we look for include big markets, unique products with compelling and defensible value propositions, durable revenue growth, and talented founders and teams that can execute on the opportunity as markets evolve. Most of the top fintech companies we have seen have all of these components going for them.
You’re definitely branching outside of the U.S. What markets in particular are you as a firm drawn to, and why?
We are still very bullish on US fintech but have certainly been expanding our footprint, looking at and actively investing in India, Southeast Asia, Latam and Africa. A few of our investments in these regions include M2P Fintech, CRED and Slice in India; Thunes in SEA; Pomelo in Latam; and Flutterwave in Africa. There are a few common themes across these markets that get us excited: 1) macro factors of population and income growth, 2) growing middle class, 3) digital adoption explosion, 4) under penetration of financial services, and 5) innovative public policy. Furthermore, each one of these individual markets in particular have interesting nuances that are compelling like faster UPI-led payments in India, a large ecosystem of experienced fintech founders in Latam, high willingness to pay among consumer and SMEs in SEA and compelling cross regional plays in Africa.
If a startup wants to pitch you, what’s the best way?
As we invest from Series A on, we would love to hear from all startups and ScaleUps at any stage. Founders can reference this interview and send us a note at growth@insightpartners.com with a quick blurb on what they are building in fintech!
Mark Fiorentino, partner, Index Ventures
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
2021 was the definition of a “founder’s market” in fintech. Long gone are the days half a decade ago when investors were still debating things like whether Plaid had a large enough addressable market via bank-to-bank transfers or if corporate expense management in the U.S. could sustain a decacorn outcome (let alone two!). At this point, it’s clear that if you control money movement, you can create a multifaceted monetization model that allows you to grow alongside your customers.
Now, more so than ever, investors need to prove the value they can provide as a thought partner rather than simply capital. Things like having operating experience at a high-growth fintech, strong ties into the traditional finance world, and a network of high-caliber engineers with relevant payments experience can mean the difference between winning and losing a competitive fintech deal.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
Excitement No. 1
Infrastructure businesses that are essentially indexes of rapidly growing industries. Let’s take the mobile app world for instance. App spending is expected to reach north of $270 billion by 2025, growing at north of 30%, so that ecosystem needs tools like RevenueCat to manage the various ways to pay across the Play store App Store and potentially even directly with the pending Apple-versus-Epic injunction. RevenueCat is effectively an index on this rapid growth in an increasingly fragmented ecosystem.
Excitement No. 2
The intersection of payments, retention and loyalty for e-commerce
Acquiring new customers via FB/Instagram/TikTok ads is increasingly becoming a race to the bottom for e-commerce retailers. Rather than fighting the increasing CAC battle, they’re turning towards ways to bolster consumer lifetime value (LTV). There’s an interesting crop of companies emerging weaving together payments, loyalty and retention. One example is Catch. By cutting out the card networks altogether, they allow merchants to pass through those savings to the consumer via loyalty credits leading to boosted LTVs, AOVs and repeat purchase rates.
Overhyped: That everything in fintech should be a take rate-based business model
For many fintechs, money movement, or processing volume, is often directly tied to revenue. Said fintech generates a percentage fee if money flows through their ecosystem. However, it’s starting to become a bit of a red herring in some cases. There’s a difference between a business like Stripe that moves money versus a company that sits adjacent to it. Stripe commands a take rate because it bears the risk of fraud, compliance, etc., that inherently comes with transferring large sums of cash. On the other hand, if you’re a software tool that simply tracks cash flow, expecting it to command that your contract value grows with your customer’s balance sheet doesn’t make sense.
What criteria do you use when deciding which companies to invest in?
You need the obvious things like huge pain point, pull in the market, large TAM, path to sustainable unit economics, etc., but for me, founder market fit is still more important than anything else. I look for an entrepreneur that showcases their expertise in the problem area and their empathy for potential customers. We’re seeing a lot of similar or overlapping ideas these days so the founder’s ability to demonstrate why their experience is unique in relation to the problem they’re solving is key.
What markets (in and/or outside of the U.S.) in particular are you as a firm drawn to, and why?
It’s an extremely compelling time to invest in fintech infrastructure in LatAm. There are many similarities to what we saw in the U.S. a decade or two ago. Combine the burgeoning startup ecosystem with the proliferation of software amongst legacy enterprise companies creating a strong need for more seamless money movement. At the same time, there are dynamics that make it more compelling than the U.S. ever was. Brazil’s new electronic payments system, Pix, is far more advanced than ACH and the continent’s cross-border dynamics create unique margin generating opportunities moving money back and forth between multiple currencies. We’ve invested in companies like Pomelo and Liquido that are solving problems like card issuing and cross-border payments for marketplaces.
If a startup wants to pitch you, what’s the best way?
Showing passion for the subject matter and founder market fit are the two things I’ll look for right away. Demonstrate that in whatever way possible, and I’m in for a meeting no matter what! You can find me on Twitter @MarkFiorentino.
Sheel Mohnot, general partner, Better Tomorrow Ventures
Clearly, fintech startups were the recipients of huge amounts of venture dollars in 2021. As a firm that has been investing in the space for a while, what differences in the landscape did you see? Were deals much more competitive?
Now everyone seems to be investing in fintech, which is great because that allows more founders to build in the space. But since there’s more capital, it’s also a lot more competitive. When we set out to raise fund I, there weren’t many other pre-seed/seed fintech VCs. Now it’s a lot more competitive – but founders are seeing the value in having a fund of fintech experts. We’re seeing fewer pivots today than in the past because the markets are so frothy; sometimes you get money even if things aren’t working. We’re also seeing a new wave of founders who have either started fintech companies before or were previously operators at a fintech startup.
What in particular in the fintech space is getting you all excited? What do you feel might be overhyped?
We still think we’re in the early innings of fintech, so we’re excited to watch the entire space evolve. We’re probably most excited about companies that make it easier to launch a fintech company. We’re excited about anything that makes it easier to start a fintech company, or saves engineering time, pave, logistics infrastructure. Overhyped? Web 3 (high yield savings, DAO tooling).
What criteria do you use when deciding which companies to invest in?
We really invest in people more than anything else. We ask ourselves, “Is this a talented team that’s going to execute on this idea incredibly well and is there a large market opportunity in front of them?
What markets (in and/or outside of the U.S.) in particular are you as a firm drawn to, and why?
Most of our investments have been in the United States, but we’ve also invested in Nigeria, Pakistan, Brazil, Mexico, India and Indonesia. We’re drawn to these “big markets” (>100m population) with growing smartphone penetration/middle class and the ability to go to an adjacent market.
If a startup wants to pitch you, what’s the best way?
Find a way to get in front of us that is exciting! We respond to cold emails all the time — here’s an example of a cold email that worked.
My weekly fintech newsletter is launching soon! Sign up here to get it in your inbox.
Reporter’s note: Insight Partners was inadvertently excluded from the first draft of this post, but its responses have been added