Six fintech ideas VCs want you to pitch in 2023

Investors keep telling Sifted that now is a good time to build. Some of the world’s biggest technology companies – think Airbnb and WhatsApp – was born during the last recession, after all.

And while late-stage funding has slowed, there’s still tons of cash out there for early-stage ventures. Investors poured $1.5 billion into early-stage fintechs in Europe in 2022 – just a shade short of the record $1.6 billion raised during the 2021 funding frenzy.

So what kind of fintech ideas would VCs like to see more of in 2023? And what market opportunities can the rocky macroclimate create?

Sifted asked some of the continent’s top fintech investors for their thoughts.

Potential founders: take note!

Built-in finance for businesses

Sophie Winwood, Principal of Anthemis and co-founder of WVCE

I would like to see more built-in finance solutions and financial operations software aimed at businesses. Given the increased complexity of the product and longer and more difficult sales cycle, I would assume that companies will take a more sector-specific approach than the more general options on the market. For example, a company targeting the travel industry, enabling them to offer built-in insurance products and buy now, pay later payment plans.

There is a gap in the market here because the current solutions have mostly targeted small and medium-sized businesses – and for good reason, as it is a huge, underserved market; the need is usually simpler; and they more often use technical solutions. But the SMB market is likely to be worse affected by the recession, which, along with the already rising customer acquisition costs of going after SMBs, will make them less attractive.

Medium to large businesses, however, are more likely to be recession-proof, and will be looking to diversify their revenue streams right now. I think the innovation at the SME level has now laid the foundation for fintech to move upstream.

This opportunity is also a special “2023” idea, due to the increased consumer demand for both credit products like BNPL and protection (i.e. insurance) in the current economic climate.

And extra bonus points if it’s a woman or founder with a diverse background!

Solutions to pain points in the capital markets

Rana Yared, general partner at Balderton

We tend to think of fintech as the big, consumer-facing brands that are well-known to the general public. But we’re forgetting the huge, behind-the-scenes, highly profitable fintech companies built to address the core challenges of the pipes and plumbing essential to running financial services.

For me, the biggest opportunity lies in this latter bucket. I am particularly interested in companies trying to solve the most pressing problems in capital markets: efficient capital management, cost-effective servicing of products to non-institutional clients (such as retirement or options), and large-scale workflows on archaic systems. Having spent 14 years at Goldman Sachs, with a front-row seat to the capital markets division, I have seen first-hand how critical these processes are to creating value for everyone from the individual investor to large banks, and also how much room there is . to improve the way things are done now.

Successful companies in the capital markets do not necessarily have to break new ground in engineering. But what they need is to significantly reduce operating costs, improve the quality of data and have a deep understanding of the regulations that affect their customers – traditional financial services providers.

An example that has already provided a large successful company in the USA is iCapital. It built a technology stack that made the cumbersome and operationally expensive process of accessing investment options (think hedge funds, credit funds, venture and private equity) for advised clients (ie clients of financial advisors) more efficient. In the course of a decade, it has taken over the feeder fund operations of several large established institutions.

Open bank for financial services

Luca Bocchio, Partner at Accel

One area I am particularly excited about is the evolution of open banking to open finance and then open data.

We have already seen a proliferation of open bank aggregators, with a focus on developing and maintaining connections with banks across Europe. This explosion was largely driven by EU legislation PSD2 (the Second Payment Services Directive) and the UK’s CMA (Competition and Markets Authority) order which created standards around banking APIs in Europe and mandated that banks provide API access to regulated third parties.

What is currently missing is the ability for open banking providers to easily access non-banking data, including insurance, loans, mortgages, payroll and pensions data. I believe this will change given the success of open banking and regulatory bodies will accelerate open access to new data sources beyond bank data. Consequently, we will see a wave of new and exciting open finance players and financial products.

Looking further ahead, we will see the creation of open data platforms where fintechs and non-fintechs can access consumer or enterprise approved data that expands beyond financial data. Think tools, cars, smartphones and smart home/IoT data. We will begin to see a world where the data created and owned by individuals and businesses will be used – with permission – to unlock better products and services powered by new open data platforms.

More financial super apps

Jeppe Zink, partner in Northzone

An important value driver for fintech has been delivering convenience to customers, from the likes of Stripe (B2B) and Klarna (B2C), which simplify cumbersome processes into a great simple user interface for the customer.

I believe customer convenience continues to be the North Star for traction and that the market needs more “super apps”, where they can handle a number of related but complex services within one user interface/platform.

Asset management; Enterprise Resource Planning (ERP) software that businesses can use to manage day-to-day activities like accounting — think SAP, but for small businesses; and B2B payments are good examples of segments ripe for these ideas.

A platform for due diligence

Julia Andre, partner at Index Ventures

With increasing global pressure on counterparty control, companies must spend significant time and resources on frequent, manual and repetitive controls.

But what if there was a way to simplify financial and compliance risk? If there was a single platform where any business could be continuously passported?

This will solve a major bottleneck and provide easier access to financial services by increasing B2B trade, global partnerships and strengthening the SME economy.

We are in a world of unlimited access to data and incredible AI progress that creates an opportunity for a new player to disrupt how entity risk is assessed. I would like to talk to entrepreneurs who are rethinking the due diligence market.

Companies with good unit economics

Khalil Hefaf, chief investment officer at Target Global

I think many early stage investors were happy to sign seed deals before revenues in 2021. That is starting to change.

We look for unit economics that provide a positive gross margin right from the start. Scaling loss-making businesses for the sake of growth at the expense of profitability is no longer going to attract investors.

Product-market fit can be defined by many different parameters. In the absence of monetization, compelling engagement metrics will go a long way, e.g. repeat users, retention, limited churn, cohort growth (newer cohorts grow in size and existing cohorts increase activity).

Amy O’Brien is Sifted fintech’s reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — You can register here.