Mercury CEO on the state of fintech investing

Mercury, a San Francisco-based fintech, reached a $1.6 billion valuation last year by serving as a bank for other startups. Immad Akhund heads the company.

Why it matters: Mercury has some insight into the health of the earlier venture ecosystem, given its role managing the finances of young tech companies.

• Axios sat down with Akhund to hear more about what he sees in the fintech landscape. This conversation has been lightly edited for clarity.

What do you see in the data in terms of deal making for Q3?

• I will say that this summer – basically starting in June – has been the worst fundraising climate I’ve seen since 2009. Everyone knows it’s such a bad time to fundraise that the only people who go out to fundraise are those who really need it .
• Crypto is the only thing still active. Crypto companies make up about 20% of our deposits.
• I think we expect, and most founders expect, the deal to pick up again in September as there are a lot of dry powder VCs. But they definitely took the summer vacation.

It has been over a year since you raised capital. In theory, you should be back out there by now.

• We, like many other fintechs, raised much more money than we needed. So we are not in the market at the moment. We still have more than $90 million in cash in the bank and we’re making a pretty good profit. We also continue to grow. We were around 200 at the start of this year, now we are at 344.

What about inbounds from VCs? Fintechs last year seemed to be buried in these emails.

• Anecdotally, it has been very quiet throughout June, July. But I’ve seen growth investors at least come out to say, “Let’s have a meeting.”
• What’s also interesting: I don’t hear from the crossover funds at all. It’s all dedicated VC funds. The crossover means have disappeared completely.

And how are you affected by the interest rate environment? Most of your income historically came from exchanges.

• One thing this environment helps with is that we have a reasonably large deposit base, so higher interest rates lead to higher income for us. These have been the major growth drivers since interest rates have gone from zero to 2.5%.

You are also an active fintech investor. You have invested in Jeeves, AtoB and Rappi. What piques your interest now?

• Affinity banks. The idea is that you used to have regional banks that were your city and because of that you would bank them. Now there are affinity banks based on identity. There are a few that are like LGBTQ focused, for example. There is one that is Spanish-focused.