Devin Kohli says VCs may struggle to raise their next fund

Outward VC co-founder Devin Kohli says today’s high interest rate environment and a public market correction has some venture capitalists struggling to raise money from limited partners.

Why it’s important: Less money going to VCs means there may be fewer opportunities for fintech startups to find funding, especially in the growth stage.

Details: Founded in 2017, London-based Outward VC invests in early-stage fintech startups in the UK and EU.

This interview has been edited for brevity and clarity.

How has the macro environment over the last year or so affected the fintech ecosystem?

• Fintech has been quite significantly affected. It has been affected by the public markets, by bank contagion concerns, and also many businesses have been found out in crypto and things related to it.
• Also, I think in a high interest rate environment … the venture return landscape doesn’t look as attractive, so the funds naturally struggle to raise from the LP base, which has a negative impact on venture funding.

Has LP’s interest in venture really waned?

• You see a lot of growth funds that were heavily leveraged in 2020 and 2021 have written down or marked down a lot of their investments.
• Whether it’s later growth funds that have been hit by the public market correction or specialist funds that realized there is a lot of fluff in web3 companies or crypto funds that have been wiped out… it’s very difficult for them to raise another fund when the interest is there. prices rise.
• It’s the opportunity cost of that capital going into a venture fund and being locked up for 10 years when it could be put into something else, which might have a better risk reward from a liquidity perspective.
• So you see a lot more traditional LPs turning away from venture at a later stage.

How has this environment affected your portfolio?

• We’ve taken an upfront view of the growth parts of the portfolio, which – while they themselves haven’t been affected in terms of their metrics – the broader market has, and their listed peers have, so we’ve proactively moved down. valuations internally.

Has it changed the type of opportunities you’re looking for?

• We have thought about which areas, given the macro landscape, we want to double down on.
• In real estate technology, the entire housing market in a higher interest rate environment makes it harder to get on the housing ladder and also harder to sell your property. So what are the options that can be done there? So this whole rent-to-own model is an area we spend quite a bit of time on.
• We’re also looking at issues with data, particularly around “buy now, pay later.” The data that all these guys are running on is actually very old data, and not linked or embedded data. So we look at who has the best plumber to build out a proper open banking game where.