My name is Ty Gelman and I’m a current freshman at the University of Pennsylvania studying Economics and Data Science/Statistics. Coming into Penn with an interest in investing and all things technology, I saw the opportunity of joining Moso Capital as one that aligned perfectly with my interests. I wanted to learn more about the startup world: why do so many startups fail? What are the driving factors behind the ones that succeed? What does it even mean to succeed as a startup? Who are the people investing in the technology that will shape our future? Regardless of the fact that I’ve yet to learn the answer to some of these questions, the research, learning, and conversations I’ve had during my time at Moso have helped me learn about one sector I wasn’t so familiar with before: Fintech.

Industry Overview

Financial technology (Fintech), is a sector that encompasses any piece of technology (hardware or software) that plays a role in the design and delivery of financial services and products. At its core, fintech innovations aim to enhance, automate, and disrupt traditional financial services ranging from mobile banking and peer-to-peer payment platforms to cryptocurrency and investment apps. Looking into the past, the first developments of fintechs date back to the 1950s and 1960s with the introduction of credit cards and ATMS. Whether you realize it or not, these innovations represent the epitome of the creation of fintechs: efficiency and accessibility of interacting with our financial markets. Over time, as technology advanced (internet in 1990s gave rise to internet banking services, mobile devices and crypto in 2000s, and AI, blockchain, and crowdfunding in 2010s), these fintech developments continue to improve our efficiency and accessibility to financial services.

When taking a look at the market landscape, emerging markets (EMs) are expected to play a significant role in fintech revenue growth. North America and Europe indicate strong performance with substantial expected growth by 2028 while Asia-Pacific, Latin America, Africa, and the Middle East are projected to experience extremely high growth. The current market value rests at $550B of publicly traded fintechs as of July 2023, and there are over 272 fintech unicorns with a combined valuations of $936B.

Over the past decade, the fintech sector has seen rapid growth which has been primarily fueled by digital innovations and changes in consumer preferences. The sector is currently facing challenges regarding a slowdown in funding, fewer IPOs, and our current macroeconomic environment. In recent years there has been a 40% YoY decline in fintech funding as investors have been making adjustments to their investment strategies amidst economic uncertainty. Within the sector, however, there has clearly been some segmentation and types of fintech products investors have favored more. For example, B2B segments have recorded smaller funding declines compared to B2C-focused fintechs. Embedded finance/BaaS and SME/corporate services have shown the least funding decline. Payments and lending, despite funding drops, received the largest share of total fintech funding from 2021 to 2022. 

Venture Capital Overview

Zooming in on the VC landscape, there has been a dramatic decline in 2023 for early stage fintech funding. In 2023, $46.3B was invested across 3,867 deals, showing a significant decline from the $88.8B investing across 6,517 deals in 2022. This dramatic change is likely attributable to the higher interest rates in 2023 - increasing the cost of capital for investors - in addition to the post-COVID market conditions. During the COVID years, there were unprecedented levels of funding for tech/SaaS startups because of e-commerce growth, rising popularity of remote/collaborative tools, and simply digital acceleration. This caused many startups to have inflated valuations, and the sector is currently undergoing market correction. After these years of high valuations investors are changing their emphasis from rapid growth to companies that can provide them with a clear path to profitability. This, in-turn, has led to a large shift in growth-stage investing within the tech industry as later-stage, more mature startups have shown more resilience then earlier stage startups. Because of all of this, some companies are now experiencing “down rounds”. A down round is when a company raises funds at a current valuation that is lower than the valuation the previously raised funds at. For example, Ramp, a bill payment software company, raised $300M at a valuation of $5.8B, this was 28% lower than its previous valuation. 

When looking at the future of VC in fintech, there is an anticipated rebound in 2024. VC firms such as Anthemis ($1.1B AUM) are becoming more active again–signaling an optimistic outlook for the last quarters of 2024. Despite a massive increase in AI-driven fintech products, Web3/DeFi technologies are considered promising for their potential to innovate and attract investments. Personally, I think it’ll take quite a while before crypto, blockchain, and Web3 really begin to play a crucial role in the economy, but these technologies are slowly gaining traction.