Name: Subject Snapshot | Smart Money Investing
Uploaded: 2024-04-03T11:21:28.228Z
Duration: 907.76
Description: Subject Snapshot explores Smart Money Investing at Finovate Europe hosted by Greg Palmer, VP, Finovate and our experts Robin Scher, Head of Fintech Investment, Lloyds Banking Group, Sophie Winwood, Operating Partner, Foxe Capital and Chantal Swainston, Founder, The Heard.

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{{00:00:06}}
Hey, Greg Palmer here coming to you
from Finovate Europe 2024, our first

{{00:00:11}}
show of the year and one of the
most eagerly anticipated sessions is

{{00:00:14}}
always our Investor All Star Panel.

{{00:00:16}}
Everybody in the FinTech ecosystem
wants to know what is coming down

{{00:00:19}}
the pipeline in terms of mergers and
acquisitions, what the funding outlook

{{00:00:23}}
looks like for the rest of the year.

{{00:00:24}}
Let's catch up with some of our venture
capitalists who are here on site sharing

{{00:00:27}}
their thoughts with what to expect.

{{00:00:30}}
Short answer for the first half
of the year, yeah, we're going to

{{00:00:33}}
continue to see a bit of stagnation.

{{00:00:36}}
It's, driven by BC still protecting
their existing portfolio.

{{00:00:41}}
We've not seen the end of the
companies that raised their big

{{00:00:44}}
series A in 2021 still requiring
capital to not have a huge down round.

{{00:00:49}}
So there's still 40 percent plus of
those companies that haven't had bridging

{{00:00:54}}
rounds, so haven't been acquired,
haven't raised a Series B, so we'll

{{00:00:57}}
still see a lot of protection there.

{{00:00:59}}
I still see probably the deal flow not
really picking up until the second half

{{00:01:03}}
of the year with the larger customers.

{{00:01:05}}
Investments and then for some of the
smaller ones that will continue to

{{00:01:09}}
to be as good as it has been in 2023.

{{00:01:10}}
From a valuations perspective,
I think Seed and Series A are

{{00:01:14}}
still being valued pretty well.

{{00:01:16}}
And that will continue, maybe
even tick off a little bit.

{{00:01:20}}
Series B will probably be similar
to 2023 on the basis that it was

{{00:01:24}}
the really good Series Bs that
managed to get their funding in 2023.

{{00:01:29}}
Yeah, I think we're, about the at
the point where it should be in

{{00:01:33}}
valuations, but it's going to take
a little while for the slightly

{{00:01:35}}
larger ticket deal for it to pick up.

{{00:01:37}}
Yeah, I think it's a really good question.

{{00:01:40}}
We obviously saw quite a significant
decline in FinTech in 2023 which I

{{00:01:45}}
think the whole industry realized was
needed given the peaks at 2021 and 2022.

{{00:01:51}}
However, I think valuations in terms
of going up and down can't be looked at

{{00:01:56}}
consistently across the whole of venture.

{{00:01:58}}
While we are seeing valuations continue
to come down at the late stage with

{{00:02:03}}
companies who need to be growing,
need to be reaching profitability,

{{00:02:07}}
and struggling to raise funding.

{{00:02:09}}
At the earlier stage, which is where
we invest, we actually are still

{{00:02:12}}
seeing some really high valuations.

{{00:02:15}}
And those are FinTechs where
it's a second time founder.

{{00:02:18}}
It's a space the du jour space, or if
it's just a very consensus deal that

{{00:02:25}}
a lot of a lot of funds are after.

{{00:02:28}}
And so personally for me as a FinTech
investor, I think I would love to see

{{00:02:33}}
valuations settle so we can rebuild,
but I think we'll still see some

{{00:02:37}}
volatility in the market in 2024.

{{00:02:39}}
I don't necessarily think we're going
to see a decline in financing, but I

{{00:02:42}}
think the focus has changed in terms
of what FinTechs need to deliver.

{{00:02:45}}
Thanks For a long time it was possible
to get a really high valuation without

{{00:02:49}}
proving any sort of profitability
and now that's simply not the case.

{{00:02:53}}
I think we're going to see a continued
change in companies focusing on

{{00:02:56}}
how they can make money and I think
that's going to see a very different

{{00:03:00}}
sort of IPO landscape in the future.

{{00:03:03}}
Venture is not a homogenous This sort
of industry is divided into these

{{00:03:06}}
kind of very early, middle, and late
stage, and you can't apply this kind

{{00:03:13}}
of valuation increase or decrease
to each sector equally, and I spend

{{00:03:19}}
most of my time in the early stage,
and what I would say is, we're like

{{00:03:22}}
hoping and dreaming that sort of
valuation decrease is coming down to us.

{{00:03:27}}
But it it's taken a bit of time.

{{00:03:29}}
We are starting to see companies
raise at reasonable valuations, but we

{{00:03:33}}
are still seeing crazy valuations if
there's a second time founder, if it's

{{00:03:38}}
in a the vertical du jour, which might
be wealth management or procurement.

{{00:03:44}}
And so I think we, in this room,
we can all agree that FinTech was

{{00:03:47}}
massively overvalued in 2021, 2022.

{{00:03:51}}
But I think there are still pockets of
the industry where we're seeing this crazy

{{00:03:57}}
2021 valuations because it is a game of
outliers, and if everyone believes that

{{00:04:02}}
X company run by second time founder
is going to be that winner, then you're

{{00:04:06}}
still going to see huge valuations.

{{00:04:08}}
Yeah, so I think I was Sitting here
last year and I said yep, we'll

{{00:04:14}}
definitely see loads more M& A in 2023.

{{00:04:16}}
It's going to be a big year.

{{00:04:17}}
And that absolutely did not happen.

{{00:04:20}}
I think just because things are on sale
doesn't mean people are going to buy it.

{{00:04:23}}
If you go into a shop and there are boots
on sale and you don't want boots, don't

{{00:04:26}}
buy the boots, even if they're 15 percent
off, especially in a, time of sort of

{{00:04:32}}
macroeconomic volatility, where people
multiples are changing all of the time.

{{00:04:36}}
That's not the time you
want to be buying an asset.

{{00:04:38}}
However, I think in 2024 when we
see things settle down a bit, when

{{00:04:41}}
we see rate change settle down, we
will start to see more acquisition.

{{00:04:45}}
both on the strategic side, in
terms of them building up their

{{00:04:48}}
technology functionality in terms of
mergers to improve their offering.

{{00:04:53}}
The latest example, obviously, was
Capital One, who merged with Discover.

{{00:04:59}}
But we also see private equity, I
think, come into the market, given

{{00:05:02}}
that where these late stage companies
are at the moment, in terms of growth

{{00:05:05}}
and in terms of being in that space
where they're not going to kick on to

{{00:05:09}}
IPO, but probably are good businesses.

{{00:05:12}}
Then I think we'll see some
acquisition in that, area as well.

{{00:05:17}}
I think it's a really difficult
time to start a B2C business and I

{{00:05:22}}
think a lot of the companies that
are focusing on end consumer are

{{00:05:27}}
potentially B2B to sell that technology
so I think that's probably something

{{00:05:32}}
that we'll see a little bit more of.

{{00:05:35}}
The, days of being able to raise on
just having a load of active users

{{00:05:40}}
are numbered for most even revenues.

{{00:05:42}}
You're seeing kind of series A revenues
where it used to be that you'd need a

{{00:05:46}}
million pounds a RR to raise a Series A.

{{00:05:49}}
Now now VCs, some of them might
even look at you unless you've

{{00:05:52}}
got 2 million pounds a r.

{{00:05:54}}
So even revenues is, is a challenging one.

{{00:05:56}}
I think profitability is what everyone has
been looking at in 2023 as a really key,

{{00:06:02}}
important factor and I think that will
continue and be the most important factor.

{{00:06:07}}
Having a cost conscious
route to profitability is

{{00:06:11}}
going to be absolutely key.

{{00:06:12}}
I think both of those things are
meaning that more, now more than ever,

{{00:06:16}}
people are more engaged with their
money and their personal finances.

{{00:06:19}}
They're a lot more invested in looking at
how they can get a better return on what

{{00:06:24}}
they do have, how they can save more.

{{00:06:26}}
And I think there's going to be a huge
gap in the market for companies that

{{00:06:29}}
are offering easy ways for customers
to do this quickly and efficiently.

{{00:06:34}}
First, interest rates.

{{00:06:36}}
Obviously, FinTech.

{{00:06:37}}
Financial services, highly reliant
on interest rates and companies that

{{00:06:42}}
have been building in a zero interest
rate environment, for example,

{{00:06:45}}
companies in the lending space are
really going to suffer because their

{{00:06:50}}
whole business model has changed.

{{00:06:51}}
Their fundamentals have changed.

{{00:06:52}}
I think that's the area that a lot
of people are wary of at that moment.

{{00:06:56}}
In terms of the cost of living, I
think we're going to see a crunch

{{00:07:01}}
year this year, is my feeling,
and that's going to massively,

{{00:07:04}}
disproportionately impact DTC, Fintechs.

{{00:07:08}}
I You know, if you have consumers that are
spending less, that are really watching

{{00:07:13}}
their costs, they're not going to be
necessarily spending on that FinTech

{{00:07:17}}
subscription, multiple different products.

{{00:07:19}}
They're not going to be investing as much.

{{00:07:20}}
And so I think we'll see that
area disproportionately impact.

{{00:07:25}}
And then in terms of this kind of
cost versus profitability, it's that

{{00:07:29}}
it's a trend across all of venture.

{{00:07:31}}
A refocus on unique economics, a refocus
on profitability or past profitability.

{{00:07:36}}
And that is, it's slightly different
in, financial services and FinTech.

{{00:07:41}}
It's not as straightforward as
the software or SaaS business

{{00:07:43}}
where you can get those kind
of 70 to 80 percent margins.

{{00:07:46}}
There are interest costs, there are
interchange fees, there are payment fees.

{{00:07:51}}
And so I think, my hope is that we
don't go too far down that line and kill

{{00:07:57}}
innovation because when companies are
growing, venture backed companies are

{{00:08:00}}
growing, the whole point is that us as an
ecosystem supporting those companies to

{{00:08:06}}
build an environment where they wouldn't
work, to then reach a scale where they

{{00:08:09}}
can deliver innovative new products and
solutions to businesses and customers.

{{00:08:14}}
And I think that will,
evolve over the next year.

{{00:08:17}}
I think financial inclusion
is a really exciting space.

{{00:08:20}}
I think the way that the finance system
has been built has excluded a lot of

{{00:08:24}}
people and there are some great startups
in that space like Plend or Blue Money.

{{00:08:28}}
They're all doing amazing
things for different communities

{{00:08:30}}
that need access to money.

{{00:08:32}}
I do think there's also going to
be a significant focus on risk

{{00:08:35}}
and compliance and regulation.

{{00:08:38}}
Unfortunately, we're here
to developing new products.

{{00:08:42}}
It's always a balance that FinTechs are
going to have to find and making sure

{{00:08:45}}
that they meet all the requirements
and go above and beyond is going

{{00:08:49}}
to be an interesting challenge.

{{00:08:51}}
So this is a tough one, I'll have
to have a crystal ball for that,

{{00:08:55}}
but the strong investments that I
think I, like regtech and think that

{{00:08:59}}
regtech will continue to be a place
where you'll get strong investment.

{{00:09:03}}
I think, cybersecurity fraud and
financial crime are going to be important

{{00:09:09}}
areas to continue investing as the
bad actors get better themselves.

{{00:09:14}}
We've got to, as banks, protect ourselves,
so you'll see some investment there.

{{00:09:18}}
I think InsureTech has been ripe for
further innovation for a while now.

{{00:09:23}}
And I think maybe this year or next
year is going to be the year for it.

{{00:09:26}}
And if I look at kind of the demographics,
you'll perhaps see Mass Affluent

{{00:09:30}}
as an area that I know a lot of the
banks are after either increasing or

{{00:09:34}}
protecting their revenue pools there.

{{00:09:36}}
So you might see some some investment
in kind of B2B areas in that space.

{{00:09:41}}
I would say, or the thing that
I haven't mentioned is Gen.

{{00:09:44}}
AI.

{{00:09:45}}
Which is partly because right now,
February 2024, everyone's a little

{{00:09:49}}
bit excited, a little bit scared.

{{00:09:50}}
But I think if you've got something with
a really kind of niche area that they're

{{00:09:54}}
looking at, that has taken a lot of years
of R& D to develop the exact specific

{{00:09:59}}
models to to help improve that, then Gen.

{{00:10:03}}
AI could be really, good.

{{00:10:05}}
huge, not just the big vendors,
but also the small players as well.

{{00:10:09}}
Yeah, so I'm, a bit of an InsurTech nerd.

{{00:10:13}}
I think it's a really
exciting place to be.

{{00:10:15}}
I think InsurTech is, almost
like the step below Fintech.

{{00:10:19}}
So if you think of Fintech 1.

{{00:10:21}}
0, it was basically digitizing
traditional products and

{{00:10:24}}
distributing them, more effectively.

{{00:10:28}}
But there was no innovation
in the products themselves.

{{00:10:30}}
We saw that with InsureTech 1.

{{00:10:32}}
0 and the companies and then
subsequently went public and then

{{00:10:36}}
didn't perform as well because they
didn't have that technology asset

{{00:10:40}}
or differentiated underwriting.

{{00:10:42}}
We're now seeing companies building
that have better data sets.

{{00:10:46}}
It's better technology or targeting
new or emerging risks and in a world

{{00:10:50}}
where it is getting riskier with
climate change, with macroeconomic I

{{00:10:54}}
think that's an exciting place to be.

{{00:10:57}}
The two other areas that we're really
focused on is one wealth management.

{{00:11:02}}
So we're about to see the largest
transfer of wealth in history.

{{00:11:05}}
It's about 84 trillion
between generations.

{{00:11:09}}
And that new generation
is also digitally savvy.

{{00:11:13}}
And.

{{00:11:14}}
and has, and can have different
offerings and products presented to them.

{{00:11:18}}
We're also seeing a a shift
in the returns, profile of

{{00:11:25}}
where you can do investments.

{{00:11:26}}
So previously, a lot of the returns was
in the public market, we're now seeing a

{{00:11:31}}
lot more of them in the private market.

{{00:11:33}}
So I think we'll see a fundamental shift
in terms of investment strategies as well.

{{00:11:37}}
And then the third one, which
again, I think is slightly nerdy

{{00:11:40}}
is I think tax and accounting is
a really interesting place to be.

{{00:11:44}}
We like to look at industries where
innovation happened seven to 10 years

{{00:11:47}}
ago, and now we're Those kind of start
ups are seen as incumbents, so if you

{{00:11:51}}
look at the QuickBooks, Intuits of the
World, terrible software, very difficult

{{00:11:55}}
to use we think it's right for innovation.

{{00:11:58}}
When it comes to concentration as
well, I don't think we've learned

{{00:12:01}}
our lesson, I don't think They've
learned their lesson from 2021.

{{00:12:05}}
We see, where I work, obviously,
I see a lot of FinTechs who are

{{00:12:09}}
pitching for investment, but also
pitching for partnership with Lloyds.

{{00:12:13}}
And there is so much of the kind
of start up and early stage where

{{00:12:16}}
someone said, Oh, we've got this
really cool solution for this.

{{00:12:19}}
And I've just thought have you not even
done even the briefest market scan there?

{{00:12:22}}
Because this is a solution that
is like 20 people already offer

{{00:12:26}}
and they're offering it well.

{{00:12:28}}
And you're not providing
anything unique at all.

{{00:12:30}}
So we're not like every, day that
goes by, I'm thinking that we're

{{00:12:34}}
not really learning our lesson here.

{{00:12:35}}
And people need to actually
look at these really, the narrow

{{00:12:38}}
verticals and how they can.

{{00:12:39}}
Solve very, specific problems
that no one's done before.

{{00:12:41}}
You need to be looking
at the niches though.

{{00:12:44}}
This is one of the big reasons
why we started investing.

{{00:12:47}}
So you've got the, kind of the,
partnership with the FinTech FinTech

{{00:12:52}}
just trying to essentially take
what the take the bank's revenues.

{{00:12:59}}
I found that in the last couple of
years, FinTechs are much less interested

{{00:13:04}}
in trying to win revenues from banks,
but instead trying to partner with

{{00:13:08}}
banks to generate revenues together.

{{00:13:11}}
And I think that, for me, is
the key area of the landscape

{{00:13:15}}
that's improved massively.

{{00:13:16}}
It's not a competitive landscape anymore
with the fintechs trying to compete with

{{00:13:19}}
the bank, but it's the fintechs and the
banks working together to deliver the

{{00:13:23}}
best possible outcome for the customer,
and driving revenues for the bank.

{{00:13:28}}
So I think it's a really great time to be
a FinTech and a great time to partner with

{{00:13:33}}
a bank and to have a strategic investor.

{{00:13:35}}
So I think where those three align is
really around these points of innovation.

{{00:13:42}}
So taking pain points, taking on digital
processes, or taking areas of customer

{{00:13:50}}
needs that aren't satisfied and saying
how are we going to work together to

{{00:13:55}}
solve this or to release a product.

{{00:13:59}}
And I think that, that will a lot
of people think that sort of FinTech

{{00:14:04}}
is, in a difficult place right now,
that we'll see some detraction.

{{00:14:08}}
But actually, I think it's a
really exciting and interesting

{{00:14:11}}
time to be working in FinTech.

{{00:14:13}}
Because when everyone's
looking the other way.

{{00:14:15}}
The people who are focused on it will
benefit and so I'm excited to see

{{00:14:19}}
what's going to come out of this year.

{{00:14:23}}
I think, the industry has become a lot
more human over the last 10 to 15 years.

{{00:14:29}}
We're a lot more invested in the
people that are running these companies

{{00:14:32}}
than I think we were previously.

{{00:14:34}}
And I think being authentic and honest
and, reliable is, really important.

{{00:14:39}}
This is going to be a much bigger
focus for even just the average

{{00:14:43}}
person when they're choosing
who to put their money with.

{{00:14:46}}
Of course, Finovate Europe
is just our first stop of our

{{00:14:48}}
conference circuit this year.

{{00:14:49}}
We'll be in San Francisco in May.

{{00:14:51}}
We'll be in New York again in September.

{{00:14:53}}
We'll continue to watch the M&
A and funding spaces over the

{{00:14:56}}
course of the next 12 months.

{{00:14:57}}
For more updates, check out finovate.

{{00:14:59}}
com or more video updates
right here on Streamly.

Hey, Greg Palmer here coming to you
from Finovate Europe 2024, our first

show of the year and one of the
most eagerly anticipated sessions is

Everybody in the FinTech ecosystem
wants to know what is coming down

the pipeline in terms of mergers and
acquisitions, what the funding outlook

Let's catch up with some of our venture
capitalists who are here on site sharing

Short answer for the first half
of the year, yeah, we're going to

It's, driven by BC still protecting
their existing portfolio.

We've not seen the end of the
companies that raised their big

series A in 2021 still requiring
capital to not have a huge down round.

So there's still 40 percent plus of
those companies that haven't had bridging

rounds, so haven't been acquired,
haven't raised a Series B, so we'll

I still see probably the deal flow not
really picking up until the second half

Investments and then for some of the
smaller ones that will continue to

From a valuations perspective,
I think Seed and Series A are

And that will continue, maybe
even tick off a little bit.

Series B will probably be similar
to 2023 on the basis that it was

the really good Series Bs that
managed to get their funding in 2023.

Yeah, I think we're, about the at
the point where it should be in

valuations, but it's going to take
a little while for the slightly

Yeah, I think it's a really good question.

We obviously saw quite a significant
decline in FinTech in 2023 which I

think the whole industry realized was
needed given the peaks at 2021 and 2022.

However, I think valuations in terms
of going up and down can't be looked at

consistently across the whole of venture.

While we are seeing valuations continue
to come down at the late stage with

companies who need to be growing,
need to be reaching profitability,

At the earlier stage, which is where
we invest, we actually are still

And those are FinTechs where
it's a second time founder.

It's a space the du jour space, or if
it's just a very consensus deal that

And so personally for me as a FinTech
investor, I think I would love to see

valuations settle so we can rebuild,
but I think we'll still see some

I don't necessarily think we're going
to see a decline in financing, but I

think the focus has changed in terms
of what FinTechs need to deliver.

Thanks For a long time it was possible
to get a really high valuation without

proving any sort of profitability
and now that's simply not the case.

I think we're going to see a continued
change in companies focusing on

how they can make money and I think
that's going to see a very different

Venture is not a homogenous This sort
of industry is divided into these

kind of very early, middle, and late
stage, and you can't apply this kind

of valuation increase or decrease
to each sector equally, and I spend

most of my time in the early stage,
and what I would say is, we're like

hoping and dreaming that sort of
valuation decrease is coming down to us.

We are starting to see companies
raise at reasonable valuations, but we

are still seeing crazy valuations if
there's a second time founder, if it's

in a the vertical du jour, which might
be wealth management or procurement.

And so I think we, in this room,
we can all agree that FinTech was

But I think there are still pockets of
the industry where we're seeing this crazy

2021 valuations because it is a game of
outliers, and if everyone believes that

X company run by second time founder
is going to be that winner, then you're

Yeah, so I think I was Sitting here
last year and I said yep, we'll

I think just because things are on sale
doesn't mean people are going to buy it.

If you go into a shop and there are boots
on sale and you don't want boots, don't

buy the boots, even if they're 15 percent
off, especially in a, time of sort of

macroeconomic volatility, where people
multiples are changing all of the time.

That's not the time you
want to be buying an asset.

However, I think in 2024 when we
see things settle down a bit, when

we see rate change settle down, we
will start to see more acquisition.

both on the strategic side, in
terms of them building up their

technology functionality in terms of
mergers to improve their offering.

The latest example, obviously, was
Capital One, who merged with Discover.

But we also see private equity, I
think, come into the market, given

that where these late stage companies
are at the moment, in terms of growth

and in terms of being in that space
where they're not going to kick on to

Then I think we'll see some
acquisition in that, area as well.

I think it's a really difficult
time to start a B2C business and I

think a lot of the companies that
are focusing on end consumer are

potentially B2B to sell that technology
so I think that's probably something

The, days of being able to raise on
just having a load of active users

You're seeing kind of series A revenues
where it used to be that you'd need a

Now now VCs, some of them might
even look at you unless you've

So even revenues is, is a challenging one.

I think profitability is what everyone has
been looking at in 2023 as a really key,

important factor and I think that will
continue and be the most important factor.

Having a cost conscious
route to profitability is

FinovateEurope

Expert Insight

Subject Snapshot explores Smart Money Investing at Finovate Europe hosted by Greg Palmer, VP, Finovate and our experts Robin Scher, Head of Fintech Investment, Lloyds Banking Group, Sophie Winwood, Operating Partner, Foxe Capital and Chantal Swainston, Founder, The Heard.