By Emilia David
July 21, 2022
Financial technology remains a focus for many investors despite a market downturn. Several fintech startups that soared during the pandemic — like Klarna, a once hot “buy now, pay later” startup — have taken huge hits to their valuations and announced significant layoffs.
Venture capitalists have predicted that certain areas of fintech will get much of investors’ attention as they evaluate strategies to support companies they believe might weather the storm. But even as interest in fintech slows, some VCs see opportunities, especially as founders focus on differentiating themselves.
Mercedes Bent, a partner at Lightspeed Venture Partners, said that even during a market downturn, fintech has much to offer consumers. “Fintech is still a big need for the everyday person,” she said. “If you think about the market structure, why do consumer fintechs exist? It’s because old-school banks haven’t innovated as much as the end users want.”
Insider spoke with 25 fintech-focused VCs about what they see on the horizon for the sector and how they’re weathering the downturn.
How did you get into fintech investing?
I have a super nonstandard background. I don’t come from venture. I don’t even come from an entrepreneurship background. I spent nearly seven years as an intelligence officer in the military. Oddly enough, I was deployed in northern Iraq in 2019, and I had just accepted a position at Stanford’s Graduate School of Business. I wanted to transition out of the military. It was about 11 months before starting business school.
I had a broad interest in entrepreneurship and was more of a fintech tourist. But as I started looking into it, I started to understand the core of what was happening. I’m a statistician by training, so I’ve always been fascinated by businesses and spaces with really deep data, and that’s why I gravitated towards fintech naturally.
Have there been any differences in the fintech sector from several years before?
If you look at the first wave of fintech, a lot of it was neobanks. I do not want to knock those in any way, but I think what’s happening with a lot of these consumer-facing fintechs is the cost of things has been increasing, such as customer acquisition. The problem is that there are so many traditional banks now offering the same kind of digital-first customer experience. So if your product isn’t distinctly unique, your cost is going through the roof, and now you’re competing against all these other services. The longer-term path is to be able to cross-sell and layer multiple financial services to really be able to operate at a large scale. A good example of this is SoFi, where they started with student loans and now they obtained a banking charter.
Where are other opportunities in fintech?
Most of the expansion will happen globally, but I think there’s still room in the US for growth. Look at an area like real estate — there’s still a huge amount of people paying their rent by check. Fintech has not fully touched a lot of areas, like, say, construction. There are still bespoke verticals that fintech can still enter and disrupt.
Why did you start in venture capital?
We focus on AI, fintech, and cybersecurity. We are also the first Latinx-founded VC firm on the East Coast; my cofounder is Mexican American. So we’re probably very different from a typical VC. We started the firm in 2016, and when we exited one investment, we thought we could either buy a three-bedroom in Brooklyn or we could fix this broken venture-capital system. We want to create a lot of transparency in the capital stack.
As an investor, what are you interested in?
We love it when our three focus topics crash together. One of our companies is called FiVerity, and it’s AI fraud detection for banks. And then we bring in a diversity-and-inclusion lens to that. I’m a product of financial inclusion. I went to a state school. So we’re really passionate about that direction the industry is going in. I think we’re at this really beautiful moment now where you see these large financial institutions working with startups and creating a space where we can collaborate.