Restive Fintech report points to more regulation in a slower funding climate

Restive Venturesa seed fintech investor, launched its State Of Fintech 2023 report to support the founders as they enter the new year. Its notable findings include a more active regulatory environment protecting consumers in the wake of FTX collapse as well as support competition. The report also points to a tighter financing environment in Series A and an increased appetite for partnerships from established operators.

Restive invests at pre-seed and seed in fintechs, and provides operational expertise in the regulated industry. Among its founder-focused activities are an annual founder trip to Washington, DC, to meet with regulators, and speed dating events with industry partners.

“If you’re raising a seed round in this climate, assume it’s going to be very difficult to raise an A,” according to the report.

Drawn from a survey of fintech seed investors, the report estimates average pre-seed values ​​at around $9 million, while average seed values ​​are now down around 50% – to $12 million. But the selection is still wide. Hidden in this finding is that several seed rounds are perceived negatively by some investors. To these investors, raising additional seed rounds instead of meeting Series A milestones suggests that a startup is not reaching product market.

More regulation

There is a shift in the regulatory environment from “innovation” to “enforcement,” according to the report.

we talked to Cameron Peakea partner at the firm, about Restive’s findings around seed valuations, the increased interest in M&A and the complex regulatory environment in 2023.

Regulators are moving from “pushing innovation as an agenda item to wanting to ensure there is fair competition,” Peake said. They ensure that both “customer protection and the ability for upstarts to play within broader areas are protected.”

A new focus is regulation around banking as a service.

“Offering services to external parties and the bank as the chartered institution was never considered within the regulation,” said Peake, who previously had regional bank supplier relationships but did not support fintechs with consumers using their services.

“Regulators are asking tough questions about consumer data and seeking to understand where the risk actually lies in the three-way relationships between fintechs, BaaS providers and the actual regulated bank,” the report said.

Partnership

A bright spot in the report is that major banks, insurance companies and traditional payments companies are keen to partner with fintechs, with 80% expecting partnerships to increase by 2023. And as the IPO market has narrowed and private valuations have declined, interest in acquisitions has increased. “A lot of these outdated systems are just ripe for M&A,” Peake said.

Looking forward to 2023

The areas Peake is excited about in 2023 include financial infrastructure because of “outdated infrastructure that exists across these legacy financial institutions,” she said.

More work needs to be done on compliance workflows around billing management, Peake said. A hot topic is the digitization of payments for industries that have not yet migrated, such as payment solutions for school districts and their suppliers.

Illustration: Dom Guzman