Partner Perspectives on Money20/20
Trends and takeaways from this year’s conference
Money20/20 stands as the pinnacle event in the fintech world, drawing industry leaders and innovators from across the globe to discuss, debate, and shape the future of finance. This year’s event was no different.
Our partners share their insights and observations on the pivotal themes and trends that dominated the conversations throughout the three-day conference in Las Vegas.
Dan Kimerling, Managing Partner
We are fintech investors, and every year at Money20/20, people are either focused on the “fin” or the “tech.” A few years ago, the spotlight was on lending – a quintessentially fin topic. However, this year was all about tech, with a pronounced emphasis on B2B software catering to back-office operations. The number one area of focus was compliance software. Fin topics noticeably took a backseat.
Personally, I find this trend a bit misguided. Given the current macro environment, with much higher base rates, I am much more excited about fin opportunities. There are lots of financial services business models that do better in a high(er) rate environment. I did not see many people at the show thinking along that line. Conversely, higher discount rates make the long-dated cash flows of software companies less attractive assets to hold.
In some ways, this is emblematic of a problematic shift in venture capital. Venture capitalists seem to think that they invest in tech. We don’t think that is correct. VCs invest in businesses that can generate the optimal rates of return for their limited partners. That can be software, healthcare or, in our case, financial services. But we should not put the cart before the horse. We are here to deliver returns, not invest in seemingly wizbang tech.
And that was a lot of what I saw happening in Vegas this year.
Vishal Rana, Partner
The general sentiment among investors was punctuated by a blend of excitement and grief, leading most folks to be relatively even-keeled. There was a genuine lack of overall doom or optimism, except for very specific investments, investors, or funds – many of which were recently in the news. As I described the health of our portfolio, the reaction was largely one of surprise and enthusiasm for us. Generally speaking, our portfolio is growing and well-capitalized. In terms of fundraising, we found other VCs are experiencing similar headwinds – a genuine lack of liquidity among LPs and a frustrating desire to pull back on venture just as multiples have settled.
Conversations with nearly all of the operators revealed a more sanguine outlook. Layoffs haven’t stopped, but they’re now smaller and less publicized. There is a lot of good senior talent on the bench, but few companies seem to be hiring leaders. Instead, they’re operating with less experienced (and less expensive) teams that are running harder than they ever have before. A lot of energy is being invested in retaining talent, figuring out marketing and top-of-funnel management, and running renewal processes that have all become a slog – all with less returns than in the past. The fear is that “do more with less” will result in “do less with less” and take the wind out of their hitherto high valuations. It remains to be seen how much reward or punishment future rounds will deliver as growth slows and unit economics improve.
Ishan Sachdev, General Partner
Throughout the conference, I discerned three predominant themes: (i) opportunity, (ii) fundamentals, and (iii) not following the crowd. To unpack that:
(i) Despite the challenges the fintech sector has experienced, along with the broader venture market, there was an unmistakable sense of optimism regarding future prospects in the sector. There was an outpouring of enthusiasm for financial services and the role technology could play.
(ii) The focus on fundamentals was palpable. My discussions with investors invariably ended in a debate about viable business models, sustainable economic structures, and the different strategic approaches companies are choosing. This is a discussion that had largely disappeared from the market during the bubble years when buzz outstripped substance as there was a presumption that growth was paramount and that everything else could be solved later. Now, there is a clear shift towards valuing substance and commitment to building robust businesses.
(iii) There is still a “herd” in fintech, particularly among a certain subset of larger funds focused on a narrow set of topics. However, many of the investors I spoke with expressed a desire to steer clear of these crowded areas. They viewed chasing those popular investments as a fool’s errand, as it often entails paying extremely high valuations for companies deemed “hot.” Instead, their focus was on exploring untapped opportunities in overlooked sectors, looking for the proverbial diamond in the rough. By definition, of course, these investors do not represent the majority, but this was a much more prevalent conversation than I recall in prior years, and suggests that some number of investors are opting out of the treadmill of chasing the new hot topic every year.
