As the fintech industry continues to experience rapid growth and disrupt traditional financial institutions, venture capital (VC) firms are actively seeking the next big thing in 2023 in fintech financing.
With emerging technologies such as blockchain and AI already creating waves, venture capital firms are looking for innovative fintech startups that can provide solutions in the areas of payment processing, financial management, lending and many other areas.
However, venture capital firms are not only interested in the latest technology buzzwords, as most are also keen to invest in fintech startups that focus on implementing financing solutions news and alternatives.
According to Kamen Bankovski, founding member of Bulgarian venture capital Vitosha Venture Partners, recent years have shown that difficult times also have a role in the evolution of the sector, as previous recessions created large companies, as well as excellent venture capital returns.
“Globally, seamless payments and embedded financing have demonstrated resilience in venture financing over the past year. The CFO stack will remain relevant, from automation to expense and payroll management, business banking and alternative financing solutions, as managing and tightening cash flow is at the center of the attention during the economic downturn. SME software in general, core infrastructure and high value-added elements will continue to attract investors’ attention. Consumer credit products with a weak value proposition will continue to suffer,” Bankovski told The Recursive.
Integrated finance will continue to attract financing in 2023
Embedded finance is one of the areas that has attracted significant fintech funding in the past, and it is a trend that is very likely to continue in 2023, agrees Apostolos Apostolakis of the Greek capital fund. VentureFriends risk.
“One area that is attracting a lot of interest is integrated finance. Marketplaces or large e-commerce companies are realizing that they can offer fintech products to their customer base. This way, they can better serve their customers by meeting their needs while monetizing this additional revenue stream. This also applies to the B2B space. There are companies like Embat Or Barté which help SMEs with cash flow or payment management, but they can also offer factoring to their clients,” Apostolakis tells The Recursive.
Additionally, venture capitalists are also interested in fintech startups that are developing robust cybersecurity measures to protect customer financial data, with a growing need for fraud detection, secure payment transactions and data privacy .
“In fintech startups, we also need to ensure that the team has a solid understanding of regulation and security. For example, in the case of a savings and investment subscription product such as Plum the company must obtain an EMI and AISP license from the FCA, the British regulatory body, and similarly, for its activities in European Union countries, it needs licenses from ESMA and possibly from other country-specific financial regulators. Additionally, security becomes an important topic from day one for fintechs dealing with money and deposits and the team needs to develop these additional skills from the start,” adds Apostolakis.
For Prague-based VC Presto Ventures, fintech funding in 2023 is only for payment infrastructure startups, as their solutions form the basis for launching new fintechs and building an infrastructure stack for banks .
“Apart from this, with the hype around AI, new fintech use cases are starting to emerge – for example those related to credit scoring, credit counseling and implementation of AI in consumer-facing fintech investment products. With further improvements in NLP, we will likely see new ways to automate even more manual tasks, primarily in the areas of insurance and processing,” says Roman Novacek, Partner at Presto Ventures.
Strong business model and growing market opportunities
When looking at a fintech startup, Vitosha Ventures Partners focuses on a strong business model, as well as a large and growing market opportunity, Bankovski emphasizes.
“We like to see an advantage, an unfair advantage, whether it’s product-driven, technology-driven, or go-to-market. Plus, they have a strong business model and solid unit economics to support it. We are betting on the perfect team to execute this idea and turn it into a large, sustainable business that has a clear path for future fundraising and is clear on the steps needed to get there,” he told The Recursive.
For VentureFriends, it all depends on the team and its capabilities to be able to commercialize its solution.
“Fintech startups are more complex and, as such, must meet all the requirements of generic software startups, and more. As in all startups, we first look at whether the space needs the proposed solution (product/market fit) and what the current level of competition is. Next, we look at team/market fit, so we need to be confident that the team has the required product DNA and marketing/sales capability to spread the use of their product,” VentureFriends’ Apostolakis told The Recursive.
Presto Ventures believes that fintechs with a strong value proposition are more likely to succeed than those that compete solely on price.
“Typically their product is not easily replicated by someone who comes in with more money and takes the market just because of that. If that happens, you could find yourself stuck in an environment where no one makes money until others leave the market,” Novacek concludes.