“Last year there was a party. This year it’s a hangover. • TechCrunch
welcome to The Interchange! If you received this in your inbox, thank you for signing up and your declaration of confidence. If you are reading this as a post on our site, please register here so that you can receive it directly in the future. Each week, I’ll take a look at the hottest fintech news from the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there, and it’s my job to stay on top of it—and make sense of it—so you can stay up to date. — Mary Ann
Mark Goldberg has been a partner in Index Ventures since 2015, invested in – and sat on the boards of – financial services companies such as Plaid, Persona, Lithic, Cocoon and Pilot. Currently the firm’s fintech leader, Goldberg has plenty of thoughts on what’s on the horizon for startups operating in the space today.
I recently sat down (virtually speaking) with Mark to talk all things fintech and luckily for me he’s not afraid to speak his mind! Here are the highlights of that conversation (edited for brevity and clarity).
TC: How would you say this year’s fundraising environment is different compared to last (besides the obvious, of course)?
MG: The rough analogy I’ve used internally is last year was the party and this year is the hangover. That’s really how it feels to me – that we’re starting to understand the excesses of last year. We have now seen the reduction period afterwards. At Index, we’re probably investing more aggressively in what we think will be the next generation of fintech companies right now.
Oh yes? So what do you think the next generation of fintech companies will be?
It’s funny because if you look at my portfolio, a lot of what I’m invested in is in the infrastructure side of fintech… I probably have five or six investments in picks and shovels. I think there’s resilience there, but it’s also just a function of the inherent volatility or lack of volatility on the infrastructure side of the market.
This year, and this is a little more contradictory, I’m actually spending a huge amount of time looking at early consumer finance, which I think is probably the most — well, I don’t know, maybe that or crypto — unloved category or subcategory of fintech today.
But I think that’s exactly where the opportunity is when we’re on the other side of this hype cycle, especially when I think about how people are going to be doing banking in five or ten years.
I think one of the lasting effects of the pandemic is that people want to bank from their phone — not to walk down the street and go to a branch or get in their car and go to a branch. I think there’s just going to be a massive transformation in consumer finance. Yes, a lot of things were overrated last year, but I think we’re going to see a wholesale transformation from an old guard to a new guard over the next few years, and this could be a very good entry point when we look back on it.
What do you think is the biggest trend happening in fintech right now?
One of the lasting things from last year’s excesses is going to be this fusion of fintech and culture, which I think is probably the most interesting trend happening in fintech that will survive the bull market and the bear market. I think it just changed the market.
I think the best example of this is the Cash App in the Block ecosystem, where they have a clothing store. I actually sent a bunch of my hedge fund friends a bunch of their clothes as a joke. In the world of Wall Street banking, you would never wear a Morgan Stanley or a Goldman Sachs shirt to a party. But Gen Zs buy clothes from the Cash App clothing store and wear them.
And there’s a really fun commercial that Cash App just put out with Kendrick Lamar and Ray Dalio from Bridgewater, which I think is just so emblematic of this fusion of pop culture, hip-hop, and the consumerization of fintech.
So, whether we’re in an up or down market, the advantage that a neobank has over an older bank is that it doesn’t have 1,000 retail locations. I think the biggest opportunity for the next generation of neobanks is the fact that they can compete in this brand war with an authentic voice that consumers actually care about.
What do you expect we will see happen in the short and long term?
High level, it’s still going to be a slower year for fintech. The speed of deals has generally fallen by 75% since the peak last year. If I saw four deals last year, now I see one. I think that’s actually healthy for everyone.
If I look at my portfolio, I don’t have any companies that are increasing right now because they all raised last year and have three years of runway and are just building and having to grow into the valuations they set last year.
From the investor side, it’s very nice not to have a gun to your head for 48 hours to make a decision on a big investment. What we’re doing right now is taking time to work around what are the areas we’re interested in, what are the best companies, and spending time with the founder is in a way that feels much healthier than it did a year ago. I expect this to be sort of the new norm for the next few quarters.
But there are deals being made, especially in the early stages. We spend a lot of time trying to figure out not only who is raising, but basically which companies we can go to and propose a flat round to the 2021 value that will say yes.
If you take a long-term view, I think next year – like in the middle of the year – the market will really open up in a big way.
Obviously, the IPO market has dried up. What do you think will happen on the M&A front?
I think we’re going to see a lot of M&A, a lot of consolidation heading into the back end of the year and over the next six months. I wouldn’t be surprised if we see one or two mega deals where there are people who thought they had a strong independent path and now look at where public market companies are doing and say, ‘It’s a much harder path to be public than I expected .’
So if you have a direct competitor, and you’re spending all your time fighting that direct competitor, this might be the kind of catalyst you needed to say, ‘Let’s stop fighting each other when the opportunity is 98% of the market that we two can reach together.’ And I think we’re starting to have those conversations happening right now.
On that note, I think the other thing is that the next wave of infrastructure will go toward a superstore that happens to sell 10 products, not 10 companies that sell one product.
Image credit: Index Ventures
Weekly news
As reported by Anita Ramaswamy: “Investment app Stash, which last raised $125 million from investors in a Series G round last year, is adding crypto to the set of products it offers its 2 million users. Co-founder and president Ed Robinson also shared in an exclusive interview with TechCrunch that Stash’s latest annual revenue number is $125 million.
From TC’s Aisha Malik: “Venmo is launching a new feature called ‘Charity Profiles’ that will allow charities to raise money and receive donations directly within its app, the PayPal-owned company announced on Monday. The new profiles will be available to charities that have received verified charity status from PayPal.”
As reported by Paul Sawers: “New York-based insurance giant Lemonade is officially launching in the UK, its fourth market in Europe and fifth overall, with a little help from one of the UK’s oldest and largest insurance providers.”
From TC’s Manish Singh: “The Central Bank of Pakistan on Friday revoked the in-principle and pilot operation approval of keywords to operate as an electronic money institution in a move that poses an existential threat to the firm. The State Bank of Pakistan said in an order that it is revoking Tag’s approval to operate as an electronic money institution, the permit required for entities to offer innovative, user-friendly and cost-effective low-value digital payment instruments such as wallets, cards and contactless payments. The central bank has also ordered the startup to close all customers’ wallet accounts and pull the apps from the app stores with immediate effect.”
From Jacquelyn Melinek: “As traditional financial institutions continue to meddle with the cryptocurrency world, Visa is the latest to expand its offerings in the space, this time working alongside crypto exchanges FTX for a “long-term global partnership.” The agreement between the two companies consists of offering FTX-branded Visa debit cards to FTX customers globally with a focus on rolling out the plastic in Latin American, European and Asian countries. The same product is currently available to US customers after being announced earlier this year.”
As reported by WealthProfessional: “Two of Canada’s best-known fintech startups, Wealthsimple and Shakepay, have been accused of misrepresenting the true costs of their cryptocurrency services. A lawsuit, filed Sept. 29 in the Superior Court of Québec, seeks punitive damages of $10 million each from both firms for misleading users, according to a report by BetaKit. The proposed class action has not yet been approved by the Québec court.”
Late last week, Bloomberg reported that Robin Hood “will partially or fully close five more offices, the latest move in a sweeping overhaul to curb spending as it adjusts to a sharp decline in trading activity.”
Breeze, an online disability insurance company, announced the launch of Leave by Breeze, a paid parental leave insurance solution for employers to support employees who need to take time away from work to care for their families. The addition, the company said in a press release, “enhances Breeze’s turnkey online platform, which already includes short-term disability insurance, two types of long-term disability insurance and critical illness insurance.”
Brazilian digital mortgage provider Volpi says it has recorded 400% quarter-over-quarter growth over the past year and is partnering with RBR Asset with plans to fund up to $30 million for their clients over the next 12 months.
Financing and M&A
See TechCrunch
Real estate investment app Fintor raises $6.2 million at an $80 million valuation
Jiko Banks $40M in Series B Funding to Offer Companies a Way to Park Their Cash in Treasury Bills
Railsr, the fintech formerly known as Railsbank, raises $46M
Fiserv, LG back Korea Credit Data as SME-focused fintech startup raises another $24.7M
Bessemer supports the SaaS platform that automates billing workflows
And other places
Debt platform Tally announced an $80 million Series D, saying it nearly tripled ARR in the past year
Equi bags $15M to improve access to ‘elite investment’
Solvento, which aims to level the playing field for Latin American trucking companies, raises $5M seed round
Jingle Pay, a financial super app based in the UAE, receives minority investment from MoneyGram
Did you know that I host TechCrunch’s Equity Podcast every Friday with Alex Wilhelm and Natasha Mascarenhas?? We’re having so much fun – you can listen here. The three of us will actually be on the pod live at TechCrunch Disrupt, which is right around the corner! Come hang out with us! There will be breakfast! For 15% off tickets to Disrupt, go here.
Well, that’s it for this week. Thanks again for reading! Until next time, xoxo – Mary Ann
