With the current volatility in the markets, some people are starting to question the viability of investments in Fintech – or technology in general. Although it’s not the majority, I suspect that we will hear more skepticism about the Fintech investment thesis over the next few months.

However, I think it would be a mistake to be too influenced by short-term market movements – although they will have an impact of course.

It feels like it’s a good time therefore to take a step back and think of the Fintech investment thesis. And I couldn’t think of a better way than to start from the piece I wrote 2 years ago, and which tried to do exactly that – but in 2014.

To summarise, at that time my conclusions were as follows:
– I believed that Fintech was a long-term trend that would totally transform finance
– That trend also benefited from a great momentum that would result in a significant amount of investments
– Entrepreneurs should therefore raise as much money as possible since it was cheap
– Investors on the other hand should select their projects very carefully and keep plenty of cash for future opportunities

Fast forward two years, what have we observed?
1) There is now a total consensus on the impact of technology in finance. From startups to banks to asset managers to insurers to investors, everybody wants to be in Fintech. So tick for 1) 
2) As for investments, there has been a flood of money in Fintech, with 7 times more money invested last year than in 2013 (Source: Fintech Industry Outlook by Call Levels). Not only that, but the amount of M&A transactions in Fintech doubled in a year, and the IPOs of the likes of Lending Club and On Deck were followed with great enthusiasm ✔


3) The previous chart clearly shows that startups seized the opportunity to raise as much money as possible. This was also evidenced by the huge valuations achieved, with 80 Fintech startups being valued more than $500m last year ✔

4) Conversely,  investors were not that cautious in their Fintech investments –  although to be fair the prevalence of liquidation preferences might make their investments slightly less risky than it seems ✔

If we wanted to pick some keywords to define the last few years in Fintech, 3 would jump to mind :
– Buying a vision: from startups to banks to investors, everyone came to the realisation that technology would dramatically change finance,  and invested on that long-term potential
-That resulted in Hypergrowth: of investments, number of startups, ecosystem, awareness in general
-Thanks to Easy money: the general macro-environment of low rates and abundant liquidity also greatly helped the investment environment.

In 2016, I think that the situation is radically different and the next few years will call for very different strategies – for investors and startups alike. The main driver behind this change is the reality check that Fintech is much harder than what people anticipated. This is the experience that the CEO of Bondcube kindly shared with us last year, and that many startups and investors are starting to realise.

Although their long-term vision might be totally right,  many entrepreneurs are now facing the short-term challenges of weak value proposition, very expensive customer acquisition costs, regulatory compliance, in other words difficulties that any business would face.  In a world of easy money, it was easy to overlook these short-term issues and focus on the long-term big picture,  but when startups discover that they need to pay hundreds of dollars to acquire a single client, then most business models don’t work anymore.

This would certainly generate some memories for those of you who lived the Internet bubble.  The extreme valuations of 2000 were built on the –  totally right –  assumption that the Internet would change the world. But once you went past that vision,  and went into the nitty gritty of building a business,  you realized that there was a chasm between the long-term vision and the short-term reality.

This I think is what most people are starting to realise about Fintech, and the reason why 2016 will not be the same as 2015. From startups that need to be refinanced to newly founded companies, it will be much harder to –  just –  sell a vision, and now the metrics will be the most important criteria.  Which means that the trend of down rounds will continue, we will see more startups folding, and people throwing the towel in Fintech.

Let’s go back to what I wrote a few years ago,  and see how different the conclusions would be for today:
– Fintech was a long-term trend that would totally transform finance:  Unchanged, the opportunity is still there
– That trend also benefited from a great momentum that would result in a significant amount of investments. On the contrary, I think that Fintech –  and technology in general – will suffer from headwinds that will make investments much harder
– Entrepreneurs should therefore raise as much money as possible since it was cheap. Entrepreneurs should spend as much time as possible not on fundraising,  but strategy and implementation
– Investors on the other hand should select their projects very carefully and keep plenty of cash for future opportunities. Investors should have more and more opportunities to invest in great Fintech companies at good (even cheap)  valuations

In other words, the last few years were easy for entrepreneurs, hard for investors. In an easy money world,  what startups lacked in terms of robust business model, they could compensate with VC money. In 2016, I think that the pendulum is swinging the other way and it will be hard for entrepreneurs, easy for investors –  in theory.

The reality of course is that it is likely to be hard for everyone, because investors will have to focus on  helping their existing investments, and be less inclined to invest in an asset class that hasn’t performed that well.

If you feel a bit demoralised by my prognosis –  which after all can be totally wrong –  then don’t be. Because this setup could end up being the best opportunity ever for Fintech, for entrepreneurs and investors alike.


For entrepreneurs who are smart, they now have the capacity to leverage on tens of billions of dollars invested in that space, and to identify what has worked,  what hasn’t, and the gaps in the market. For investors who have been around, they will remember the experience of Priceline: the best opportunity to invest in the long-term potential of online travel wasn’t to invest in 1999 when it was worth $15bn, but in 2001 when it was worth 99% less ($200m). Investing in 1999 or 2001 would have made money by today (it’s worth $50bn), but the returns would have been vastly different… This is I think what is happening to Fintech now.

Thinking of keywords that will define the next few years,  I think that we could use the following ones:
– Back to basics: everybody has now more or less understood that technology will transform finance. But there will be much more focus on the metrics of Fintech: customer acquisition cost,  lifetime value,  barrier to entry, etc
– That will lead to Profitable Growth: unlike social networks,  most Fintech companies need to generate revenues quickly,  and can’t hope on future monetization as a business model. The winners will therefore need to quickly generate cash
– And a real focus on Strategy: “Without strategy,  execution is aimless.  Without execution,  strategy is useless”.  I like this quote from the CEO of TSMC.  During the last few years, I’ve seen a lot of focus of entrepreneurs on execution,  and much less on strategy.  (eg.  “we’ll get to 10,000 customers and raise our A round”). In a world where funding will be much more constrained, it will be very important for entrepreneurs to redefine their strategies (eg.  “we’ll get to break even by focusing on a very specific market segment”).


Changing strategy: generate cash flow vs. growing with VC money

For entrepreneurs and investors alike,  I believe that there will be huge opportunities in Fintech in 2016 and beyond. This is however easier said than done –  believe me,  I was the CEO of a very well-funded startup in 2001, and at that time didn’t realise I had to change my mindset or business model.

But for those who recognise that the environment has dramatically changed, now might be the best time ever to build and invest in the next Googles in finance…


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