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The global financial services industry is eyeing one of the biggest business disruptions in a decade. But beyond the pandemic-led shutdowns, along with rising unemployment and inequality in the US, traditional financial institutions must now also reckon with young upstarts from Silicon Valley threatening their status quo.

“There is over $7 trillion of market cap in the US in financial services, and it is one of the few remaining sectors where the dominant player is not a software company. That will not last forever,” Greylock principal Seth Rosenberg told Business Insider.

Because the financial services sector is a global powerhouse, startups seeking to unseat the traditional players have a massive opportunity ahead of them, many investors said. The market opportunity is so large, investors said, that fundraising figures for fintech startups could outpace other tech industries during a downturn.

In fact, the downturn has highlighted key areas of improvement that startups may be nimble enough to address. The rocky rollout of the federal government’s stimulus package for consumers and small businesses, for example, showed some investors that there is still work to be done to improve the infrastructure banks use to process digital payments. Others saw openings for fintech startups to serve historically underbanked groups within the US population. Many members of these groups have been laid off or furloughed amid the coronavirus-led shutdowns.

“While the first wave of US fintech startups largely focused on higher-income households, there is a pressing market opportunity to better address the financial pain points of low-and-moderate income consumers, particularly during this period of acute financial stress,” Flourish Ventures principal Sarah Morgenstern told Business Insider. “These challenges are especially pronounced amongst communities of color, and have been significantly exacerbated by the current economic downturn.”

But unlike other economically resilient tech industries, few high-flying fintech companies have gone public. Some have been plagued by user distrust and accusations of skirting federal regulations, while others struggle to operate profitably in an economy created by the very companies the startups want to usurp. VC firms have remained optimistic about the market opportunity fintech startups seek to cash in on, but their returns on investment have been a mixed bag.

“We are still missing battle-tested, robust infrastructure for many key financial services workflows,” Accel partner Cherry Miao told Business Insider. “I believe that the emergence of scaled winners in this space will unlock a huge amount of creative energy and enable entrepreneurs to design products that are intensely consumer- and user-centric.”

Business Insider spoke with 25 fintech-focused investors about what challenges the industry is facing, where those opportunities lie, and what the post-COVID financial landscape may look like in the United States. The below responses have been lightly edited for length and clarity.

Options trading Meet the 25 young investors building a new financial technology system beyond Wall Street and Silicon Valley.

Options trading Grace Isford, Canvas Ventures

options trading Grace Isford

Canvas Ventures investor Grace Isford

Canvas Ventures


What drew you to fintech investing?

I grew up in the New York area surrounded by financial services. I understood how massive yet antiquated the industry was. It’s highly regulated and slow to innovate compared to others.

At Canvas, we have a deep fintech thesis, which spans across both enterprise and consumer business models. We’re at a unique time where an acceleration in regulatory changes and tech innovation in financial services is converging with an increasingly hospitable exit landscape. We’ve also seen the expansion of major tech companies finding ways to bring on more financial services or integrations onto their platforms which makes me especially excited about the massive opportunity to invest in fintech today. 

What opportunities do you see for fintech investors in the next 6-12 months?

A few interesting things are happening right now. There is an increasingly open banking core, adoption of tech by older players in the space, and a flurry of companies offering “banking-as-a-service,” especially those connecting banks and non-banks to deliver financial services in a way that previously wasn’t possible. Fintech companies that can dramatically improve efficiencies and quickly deliver value on the banking infrastructure side represent an exciting opportunity.

The surface area of risk increases with the increasing democratization of financial services across fintech platform and neobanks, necessitating greater regulatory compliance and fraud reduction efforts. The opportunity in regulatory tech will only continue to compound over time and is still relatively nascent compared to some of the other fintech verticals, indicating room for a lot of innovation and company growth.

What is your advice for young professionals hoping to break into fintech venture investing?

Read a lot and find ways to be helpful to fintech entrepreneurs and investors. There is a ton of information you can find online about successful tech companies, from newsletters to Twitter feeds and S-1s of successful IPOs. Educate yourself, and in turn, use your knowledge to help existing operators and investors to establish a relationship. Once you prove your usefulness, it’s much easier to get your foot in the door of a venture capital firm or tech company.

Options trading Solomon Hailu, Tusk Venture Partners

options trading Solomon Hailu

Tusk Venture Partners principal Solomon Hailu.

Tusk Venture Partners


What societal inequities do you hope fintech startups are able to address?

One of the scariest problems is that 25% of Americans are unbanked or underbanked. Those are people who either don’t have a bank account or have an account but still use financial services outside the banking system like payday loans to make ends meet. With the current state of the economy, I’m hoping for a resurgence of innovative peer-to-peer lending models to displace the predatory and antiquated payday lending industry.

What opportunities do you see for fintech investors in the next 6-12 months?

We’re going to see a population shift in the next year as Generation X retires and older Millennials take care of their parents. Having financial freedom and proper life insurance in place is going to be essential, and Millennials are going to turn to digital tech services to guide them through this process.

In addition, younger Millennials and Gen Z who have lived most of their lives digitally will be seeking affordable and accessible digital solutions and the removal of unnecessary agents or brokers. 

What are some of the biggest challenges facing the fintech industry right now?

At the early stage, there is a lot of competition, and building that credibility and trust with the consumer is a challenge. I think a lot of founders realize the pain points that impact our financial institutions today, but many don’t have a clear enough initial wedge and try to take on too many offerings from the start.

What areas or technologies are you currently most excited by?

I am personally most excited about the insurance side of financial technology. Insurance is an industry that has been outdated for years and suffers from a poor customer experience. I anticipate that we’ll see more companies break out in the next few years in the industry, challenging the large insurance giants to innovate, especially around the life and long-term care insurance given our aging population.

Given the current economic climate, I’m also interested in the peer-to-peer lending space and the removal of predatory payday lending practices. 

Options trading Jill Carlson, Slow Ventures

options trading Jill Carlson

Slow Ventures principal Jill Carlson.

Slow Ventures


What excited you about venture, and why did you decide to join your firm?

It sounds cliché, but it really is the people that make the job so great. Investing at the seed stage, which is what Slow Ventures specializes in, is a particularly exciting adventure — getting to reimagine the future from the earliest stages of a project and through all of the pivots of company-building. Slow Ventures, as the name suggests, is built on the premise that great founders with great ideas need time to build great companies. This ethos resonates with me, particularly in an industry where so often the mantra is to move fast and break things.

What societal problems or inequities do you hope fintech startups address going forward?

I am very cognizant that part of my relationship with finance, and part of the reason why I have always found it attractive, is because I grew up with two parents who both had Wall Street careers, who talked about managing finances around the dinner table, and who frequently had CNBC and Bloomberg news on in the background. Having a degree of fluency and comfort around finance goes a really long way because so much of finance is not designed to welcome in participants who haven’t been inducted into it through family, friends, or formal study.

I think redesigning financial tools so that they are more inclusive and accessible can go a really long way to addressing inequities — whether those tools are about saving or investing. I think Robinhood is a really great example of this. They said stock trading does not just have to be for old guy golfers in Greenwich, Connecticut.

What areas or technologies are you currently most excited by?

I have spent a lot of my career working on cryptocurrency products and while that space is not getting as much attention as it was a couple of years ago, I remain very optimistic about the technologies getting worked on this sphere. It’s an area where the dream of what the technology can offer is completely unprecedented and promises to be massively disrupted. 

Options trading Mark Fiorentino, Index Ventures

options trading Mark Fiorentino

Index Ventures investor Mark Fiorentino.

Index Ventures


What excited you about venture, and why did you decide to join your firm? 

My operational experience, including more than 3 years at Stripe, was transformative from a career development standpoint. I worked alongside go-to-market teams and developed relationships at legacy banks and card networks. Venture was the opportunity to take what I’d learned as an operator and use it to help leading entrepreneurs build great companies. 

As for Index and fintech, the two have gone hand-in-hand since the early 2000s, but it was the people, culture, and meritocratic environment that won me over. Additionally, when transitioning into venture, you want to go to a firm where you have the autonomy to lead your own deals once you’ve built the trust of the team around you. That’s atypical in today’s world, but was a key characteristic of the Index team construct as I was assessing my options. 

What societal inequities do you hope fintech startups can address going forward? 

There are plenty, but credit scoring for consumers along with the growing student debt burden are two issues that hit far too close to home. The Great Recession wasn’t too kind on my parents, and before I knew it, I had overextended myself trying to help them out. I was staring up the cliff at a loan repayment plan that was impossible to meet, an inability to restructure any form of forgiveness package, and on top of that, retroactively discovered I had left grant money on the table earlier that year. It took me years of sweat and research to dig out of that credit nightmare, and I’m one of the lucky ones. 

It’s unfortunate that it took COVID to bring these systemic issues to the forefront, but luckily there is plenty of room for the next generation of solutions. Innovation will come from removing the historic “friction” in supply and demand for student loans and grants and from leveraging forward-looking indicators for creditworthiness rather than the antiquated practice of relying on data from the credit bureaus.

One of my life goals is to prevent the next kid in my situation five years from now from living through the same nightmare I did. 

Options trading Meera Clark, Obvious Ventures

options trading Meera Clark

Obvious Ventures senior associate Meera Clark.

Obvious Ventures


What drew you to fintech investing?

Growing up, I watched my mother scale our regional North Carolina bank state by state, product by product. After college, I followed in her finance footsteps by beginning my career on the bustling trading floor before transitioning over to the world of investment banking.

I’ve witnessed the power of the financial services industry to transform lives through access to capital and the introduction of innovative financial instruments. In a post-Dodd Frank world, I believe that this opportunity for innovation sits beyond the traditional publicly traded players, which has drawn me to the evolving fintech landscape. 

What opportunities do you see for fintech investors in the next 6-12 months?

As organizations continue to focus on antifragility in a post-COVID world, I see opportunity in the digitization of the capital markets both through the launch of new platforms that facilitate transactions and the introduction of new APIs.

At Obvious, we believe in platforms that question the ways financial products are evaluated, purchased, and sold through our investments in companies like Eric Ries’ Long Term Stock Exchange.

Moving forward, I see an outsized opportunity with fixed income investing due to the manual, error-prone, opaque, and illiquid nature of the space. As a markets geek from my time on Morgan Stanley’s equity and fixed income trading floors, I am a big believer in redesigning the underlying structures that support the trillions of dollars of trade volume that continues to be transferred on a daily basis. 

What is your advice for young professionals hoping to break into fintech venture investing?

Getting a venture investing offer is similar to doing the job itself – it takes hustle, conviction, creativity, and an ability to network. Each fund is building a carefully curated portfolio of investment professionals. Great funds pass on great companies, and they too pass on talented prospective investors. That’s okay. What candidates should focus on is identifying partners that align with their values, strengths, and sectors of interest – like fintech! From my experience going through the recruitment process at Obvious, ‘when you know, you know.’

Options trading Gregory Stofman, Struck Capital

options trading Gregory Stofman

Struck Capital senior associate Gregory Stofman.

Struck Capital


What opportunities do you see for fintech investors in the next 6-12 months?

The rise of API plumbing has enabled strong and cost-effective distribution for new entrants in fintech. Companies like Plaid, Stripe, and Synapse have made great progress in making fintech infrastructure accessible. I believe this trend will expand beyond the foundational layer of fintech and will be applied to consumer action layers. Big companies will be born that deliver consumer-facing products via API in the platforms where consumers already have regular financial workflows. 

Student debt is the second-largest consumer debt category in the United States, and today’s solutions don’t move the needle for borrowers. These solutions include personalized payment recommendations based on monthly cash-flows, Acorns-like round-up contributions, loan consolidation, refinance marketplaces, employer and family contributions, and educational content. The companies that will emerge as winners in the student debt space will work closely with government bodies to drive renewed student debt legislation and will be at the forefront of technology solutions for when regulatory change occurs. Companies like Reset Button, which helps borrowers declare student debt in personal bankruptcies, and PayItOff, which helps borrowers enroll in federally sponsored student debt relief programs, will lead the next wave of innovation in student debt fintech.

What is your advice for young professionals hoping to break into fintech venture investing?

One of the best pieces of advice I received when trying to break into fintech venture investing was: “Your current job is your day job. Your next job is your night job.”

I’m a firm believer that the best way to break into fintech venture investing is to become a fintech investor before you’re actually a fintech investor. Network with founders and become a thought leader in specific verticals with an investment thesis. Meet with investors and send them market maps, research papers, and introduce them to new companies that are raising capital. Venture is still very referral-based and network-driven. If an opportunity doesn’t present itself within a given firm you will be the first person thought of for a referral at another firm when a role opens up. 

Options trading Monica Desai, Kleiner Perkins

options trading Monica_Desai

Kleiner Perkins principal Monica Desai.

Kleiner Perkins


What drew you to fintech investing?

My interest in fintech actually began with a development economics course in college. I became obsessed with financial access as a fundamental part of unlocking well-being and opportunity. Money touches everyone and everything, and yet it’s so opaque and fraught. At the time, I was focused on global inequality in monetary access and went to work on challenges like trying to solve the last-mile payment problem abroad.

Since then, I’ve broadened that interest to the many underserved populations who I believe can be better served in this new digital financial era. I love working with companies like Nova Credit, Propel, and Pillar, who are focused on making a new kind of fintech experience for those most underserved. 

What societal problems or inequities do you hope fintech startups address going forward?

COVID-19 has highlighted so many fragilities in the current system, and I’m hopeful that this will act as a turning point. I recently wrote about the need for Fintech for All, as now about 60% of Americans have little to no emergency savings. People need real-time income and credit to keep up, and merchants need easier ways to offer their customers those products. Companies and the government need new rails and datasets to distribute payments quickly and efficiently, with checks and IRS data falling quite short as we saw with the recent stimulus package.

In all of that change and opportunity, I’m hopeful that someone will further solve the need for financial education and destigmatization since these issues are actually the norm, not the exception.

What is your advice for young professionals hoping to break into fintech venture investing?

Follow your nose and start doing parts of it!  That is, I think venture actually favors non-conventional paths, and often I’ll see people from operating roles, or in financial services, with deeply relevant domain insights. Follow your nose and insights to meet companies and get to know founders within your areas of interest — your expertise may be helpful to them, and those interactions will help you calibrate your investment theses.

Options trading Parsa Saljoughian, IVP

options trading IVP Parsa Saljoughian

IVP partner Parsa Saljoughian.

IVP


What excited you about venture, and why did you decide to join your firm?

What drew me to venture is the unique opportunity to work daily with founders and CEOs, and to better understand the ins-and-outs of building and scaling a successful business.

I decided to join IVP because of the great culture, strong brand, and amazing track record in fintech, with investments in Transferwise, Klarna, Brex, Coinbase, IEX, SoFi, Tala, NerdWallet, and Personal Capital.

Fun fact — I joined IVP twice, in 2012 and again in 2017.

What opportunities do you see for fintech investors in the next 6-12 months?

Over the last six months, we’ve seen multiple large fintech acquisitions. I expect to continue to see consolidation in the industry, particularly in consumer fintech and infrastructure, especially if the fundraising environment tightens. 

While COVID-19 has created a lot of uncertainty worldwide, the pandemic has accelerated the need for financial services to be delivered digitally. This creates an opportunity for a new generation of fintech startups to emerge with mobile-first products and automated services, and for startups to more efficiently scale user acquisition.

What are some of the biggest challenges facing the fintech industry right now?

Competition has intensified as more capital has poured into the fintech ecosystem, making it increasingly important to have healthy margins and a scalable customer acquisition strategy.

While the pandemic has created some opportunities in fintech, there will still be operational and fundraising challenges. For enterprise companies, it is likely that we see longer sales cycles and reduced customer budgets. On the consumer side, rising unemployment and changing spending patterns may force companies to tighten credit requirements.

What areas or technologies are you currently most excited by?

One major trend that we’re seeing is the growth of payments cross-sold within vertical market software. By building a comprehensive digital experience that integrates payments into a seamless commerce flow, enterprise software vendors can provide better value to merchants and end-users. We’re on the hunt for software companies that are capturing more value as payment facilitators, similar to MindBody or Shopify.

Options trading Sheena Jindal, Comcast Ventures

options trading Sheena Jindal

Comcast Ventures associate Sheena Jindal.

Comcast Ventures


What excited you about venture?

VC has always been a dream job of mine. It’s one of the only jobs I know of where you get to craft the future of how humans will work, live, and communicate with each other in the next 5 to 10 years. The job lets you noodle on what the world’s problems are, and find the right founders and products that will help bridge those gaps. 

What drew you to fintech investing?

Financial services have always intimidated me as a consumer. It’s amazing that learning how to balance a checkbook, saving to buy a house, or buying insurance isn’t a requirement for graduating college.

Given how easily we can access so much other information at our fingertips, why is a mortgage or purchasing life insurance so cryptic? Why do we still need to talk to a human to assure us that we’re making the right decision? There is a tremendous need for trusted, accessible brands in this category that reduce friction and intimidation.

What are some of the biggest challenges facing the fintech industry right now?

Consumer financing apps are facing stiff competition. Features are being replicated by each player, and consumers are having a hard time knowing the difference. As a result, customer acquisition costs are rising, making the once-attractive economics much more challenging. Consolidation is likely, as is merger and acquisition activity for incumbents to acquire a digitally forward player. 

What areas or technologies are you currently most excited by?

Real estate financing solutions will continue to rise as consumers realize how much the cost of housing has outpaced the CPI. I don’t think we will be buying a house with 20% down and a 30-year mortgage from your local bank 10 years from now. There has to be a change here. 

I am also excited about financial services for seniors. With 50% of our population being 50 years old or older in the next 10 years, I do think this tech-savvy population will be looking for tools that help bridge the gap between income-generating activities, retirement savings, and leisure spending. 

Options trading Matt Heiman, CRV

options trading Matt Heiman

CRV partner Matt Heiman.

CRV


What drew you to fintech investing?

Early in my career, I had worked in financial services. As I thought about the 2-by-2 matrix of the size of the vertical and impact of software and the internet, financial services seemed uniquely in that top right quadrant. I was also drawn to it because financial services, and particularly moving money around, touches so many other areas of the economy.

What problems or inequities do you hope fintech startups can address going forward?

The ironic and unfortunate thing about financial services today is that they are the most expensive for the people who can least afford them. One of the best things about software-first startups is that, because they can dramatically reduce the marginal cost of serving a customer, they can build products that address these underserved populations profitably.

What opportunities do you see for fintech investors in the next 6-12 months?

The last few years of fintech have been fueled in large part by the opening up of financial infrastructure. I expect that we are mid-way through this evolution and have several more years of tailwind here.

Beyond that, I’m particularly excited about software that enables the finance function within companies to spend more of their time on high value-add work and less time on data collection and manual workflows. For example, Mercury allows startups to spend less time manually managing and analyzing their financials and more time operating their business.

What are some of the biggest challenges facing the fintech industry right now?

While there are dozens of fintech unicorns, there have been relatively few fintech IPOs. It remains to be seen how public markets value certain types of fintech companies. In particular, challenger banks, which make up a large percentage of the fintech unicorn class,  have not yet had their valuations tested by public markets.

What is your advice for young professionals hoping to break into fintech venture investing?

Develop a root cause understanding of how money moves through our economy, starting with cash and the US checking system. In particular, I recommend “Payments Systems in the US” by Carol Coye as a great starter text.

Options trading Nima Wedlake, Thomvest Ventures

options trading Nima Wedlake, principal, Thomvest Ventures

Nima Wedlake, principal, Thomvest Ventures

Thomvest Ventures


What drew you to fintech investing?

Finance has long been considered a highly regulated industry dominated by giant banks that resist disruption. However, we are now in a moment of rapid innovation within financial services driven largely by technology-enabled challengers. Demand for startups’ services is strong, piqued by widespread frustration with big banks. Perhaps most important, customers have embraced the idea, thanks to the rise of the mobile on-demand economy.

We think now is the perfect time to take share away from legacy financial institutions by building better consumer experiences, lowering the cost of financial products and services, expanding access to historically underserved customer segments, and conceiving entirely new financial products that are enabled by technology. 

Every year, we see new innovative ideas and better executions, and that makes our work incredibly exciting. The quality of entrepreneurs building within fintech is very high, which makes this a great category to be investing in.

What opportunities do you see for fintech investors in the next 6-12 months?

We’ve historically relied on banks to distribute capital into the economy. However, the recent COVID-19 stimulus efforts have demonstrated that banks are often slow and unprepared to distribute capital efficiently. In many instances, fintech startups have stepped in to help distribute capital. For example, Thomvest portfolio company Kabbage quickly ramped up efforts to originate more than $5 billion in Paycheck Protection Program loans for small businesses.

What are some of the biggest challenges facing the fintech industry right now?

There is a fundamental cost of capital disadvantage. Few fintech startups have received banking charters to date, but this may change over the next few years. 

For technology-enabled lending companies, the business disruption created by COVID-19 has forced many into survival mode. Uncertainty remains over when to resume lending in earnest, and how underwriting models must change in a post-COVID world. 

The explosion of fintech offerings over the last decade led to some confusion from the consumer perspective. Standing out from the pack is becoming more difficult, which results in higher costs to acquire customers.

Options trading Sarah Morgenstern, Flourish Ventures

options trading Sarah Morgenstern

Flourish Ventures principal Sarah Morgenstern.

Flourish Ventures


What excited you about venture, and why did you decide to join your firm?

My Mom and Grandma are both entrepreneurs. Inspired by their dynamism and grit, I was drawn to venture to help other non-traditional founders pursue their visions at scale.

After graduate school, I worked at McKinsey, where I served both corporate finance and social sector clients. My most rewarding projects fused those two worlds together, sparking my interest in purpose-driven investing. 

When I transitioned to venture, Flourish stood out because of the fund’s clear mission to help build a fairer and more inclusive financial system. Flourish is also fortunate to operate as an evergreen fund, which affords us the flexibility to support ecosystem programs that advance pro-consumer innovation. 

What problems or inequities do you hope fintech startups address going forward?

Even prior to COVID-19, nearly 70% of Americans were struggling with some facets of financial health. At the same time, underserved US households pay nearly $190 billion annually in fees and interest for financial products and services, which too often fail to improve their situations. These challenges are especially pronounced amongst communities of color and have been significantly exacerbated by the current economic downturn.  

While the first wave of US fintech companies largely focused on higher-income households, there is a pressing market opportunity to better address the financial pain points of low-and-moderate income consumers, particularly during this period of acute financial stress. Startups such as Propel, which helps Supplemental Nutrition Assistance Program recipients save time and money, and Steady, which provides income discovery tools for gig workers, are both compelling leaders in this space.    

What are some of the biggest challenges facing the fintech industry right now?

While the U.S. federal government moved quickly in March to approve the first round of stimulus funds, getting that money into the hands of targeted beneficiaries proved painfully slow and piecemeal for individual households and small businesses. It is a frustrating reality during times of crisis that emergency payment options remain so inefficient. 

More broadly, US financial institutions continue to rely on COBOL-based, legacy back-end systems that hamper product innovation and drive up the cost-to-serve.  

Options trading John Gianakopoulos, Scale Venture Partners

options trading John Gianakopoulos

Scale Venture Partners associate John Gianakopoulos.

Scale Venture Partners


What excited you about venture, and why did you decide to join your firm?

I’ve been excited about startups and venture from my college days. I was lucky enough to be involved with some great entrepreneurial groups in school and ended up working as a product manager for Intuit after graduating. 

I realized that the aspects of the job I liked the most were actually the strategic components, more specifically identifying an unsolved problem in a market and building a product to solve it. You have creative autonomy as a product manager, but your domain is necessarily more narrow in scope. Venture investing poised analogous strategic challenges in that you identify unsolved problems in a market and find companies solving that customer need. However, it broadened the scope of work, which was appealing to me.

What opportunities do you see for fintech investors in the next 6-12 months?

Fintech seems to have evolved into a catch-all phrase that can include any company providing ancillary financial services, so there are a lot of opportunities. If you narrow the aperture a bit, I’m most bullish on the near-term opportunities that fintech enablers bring to non-fintech focused companies. The concept of embedded finance, where fintech offerings around payments, lending, or banking can be extended and made available to third-party platforms is very interesting to me.

What are some of the biggest challenges facing the fintech industry right now?

At a very high level, incumbent financial industries are very consolidated. There are a handful of credit agencies and large banks that control the disbursement and investment of a large portion of consumer funds. If you’re directly competing with these incumbents, finding a competitive advantage to use as a wedge for acquisition can be difficult, and scaling this can be expensive.

For companies selling into these incumbents, sales cycles are long, and regulations coupled with lengthy internal approval processes can prove cumbersome. That said, it’s these same structural complications that make the broader fintech industry ripe for new companies to enter and compete.

Options trading Cherry Miao, Accel

options trading Cherry Miao

Accel partner Cherry Miao.

Accel


What opportunities do you see for fintech investors in the next 6-12 months?

The COVID crisis rapidly accelerated the adoption of digital financial products. User growth and awareness that likely would have taken a few years otherwise happened in a few months, and I believe that the trend towards increased fintech adoption will be enduring. 

What are some of the biggest challenges facing the fintech industry right now?

We are still missing battle-tested, robust infrastructure for many key financial services workflows. I believe that the emergence of scaled winners in this space will unlock a huge amount of creative energy and enable entrepreneurs to design products that are intensely consumer- and user-centric. 

Working relationships between fintech companies and “traditional” financial institutions are still nascent. Far-sighted community and regional banks like Sutton, Evolve, and NBKC have led the way in terms of working closely with fintech startups, but I’m always surprised by the lack of traction that these companies have within larger banks. As far as I can tell, no one loves their core banking provider or their highly-manual Know Your Customer process, and yet vendor turnover in those spaces is quite low. 

What areas or technologies are you currently most excited by?

I continue to be massively bullish on fintech infrastructure. Galileo was my first investment at Accel, and they were acquired by SoFi just a few months after our initial investment. I’m especially excited by areas that support the increased bundling of financial services into other compliance software and PCI-compliant data management, as well as banking-as-a-service for international markets. 

Fintech as a way to support less traditional relationships between employees and employers. Here I mean both companies that enable financial health for gig economy and contractors and also companies that facilitate the shift to remote work. 

What is your advice for young professionals hoping to break into fintech venture investing?

Doing your research on the complex relationships in fintech and being able to navigate and understand the differences and interrelationships between an issuer-processor, a merchant acquirer, and a payment facilitator will make you a savvier investor and a better partner for the executive teams and founders you work with. 

Options trading Seth Rosenberg, Greylock

options trading Seth Rosenberg

Greylock principal Seth Rosenberg.

Greylock


What drew you to fintech investing?

My background had one foot in the traditional finance world via Goldman Sachs and one foot in the consumer software world via Facebook. It became obvious that most of the fees extracted by large financial institutions, and the intentional lack of transparency to enable those fees, were due to constraints easily solved by software.

There is over $7 trillion of market cap in the US in financial services, and it is one of the few remaining sectors where the dominant player is not a software company. That will not last forever, and the advent of consumer trust, regulation, and necessary software and API infrastructure has laid the foundation for the next wave of fintech companies to finally take on the banks.

What opportunities do you see for fintech investors in the next 6-12 months?

I’m excited by opportunities in wealth management, the intersection of healthcare and fintech, and financial infrastructure for emerging markets.

With the pandemic, personal savings rates reached an all-time high at 32.2% in April, while volatility in both the stock market and the job market remained elevated. In this environment, people are in need of more tools to manage their money. There’s still a lot of room between fully automated robo-advisors and full-service banks with web portals, and this space will continue to digitize as boomers transfer wealth to millennials over the next decade.

In healthcare, out-of-pocket expenses account for more than $365 billion annually, or 10% of all spending, which necessitates better payments, savings, and liquidity for individuals and providers.

Emerging markets are greenfield and growing rapidly, and we’re excited about our investment in PayJoy which expands access to financial services to historically underserved people. 

What are some of the biggest challenges facing the fintech industry right now?

Fintech is no longer a niche, nerdy space. Incumbents have woken up to the opportunity and threats that software-first companies pose to their business. This could lead to defensive actions including regulation that makes it more difficult to compete and innovate.

Options trading Maitree Mervana, Acrew Capital

options trading Maitree Mervana

Acrew Capital investor Maitree Mervana.

Acrew Capital


What drew you to fintech investing?  

I’ve always been fascinated by consumer behavior and how society around us changes and evolves.

My family moved around a lot when I was younger in search of better opportunities, from India to Africa to the US. I developed a broad lens of the world, and this has always inspired me to think globally. Technology has been able to bring our world closer than ever before and as our world gets increasingly more connected, so will the need for more efficient and connected financial services.

From a societal and economic perspective, it has been fascinating to see how fintech companies have fundamentally changed and democratized access to financial services locally and globally. Financial institutions have underpinned our economy and access to capital drives our economy forward. I am excited about the role fintech is playing and can play in supporting the backbone of our economic and social advancement. 

What opportunities do you see for fintech investors in the next 6-12 months?

I think there exists a significant opportunity for solutions that continue to democratize access to financial services for historically underserved consumers. In particular, underwriting solutions, credit-building solutions, and solutions for specific populations are all interesting. I also see significant opportunities for startups that are enabling employers to support the “financial wellness” of their employees through services like coaching, education, asset management, and financial advice. 

Lastly, while this continues to be an open question for some, and blatantly obvious for others, it behooves me to acknowledge that I continue to pay attention to the rising usage of digital currencies and assets as they have the potential to completely transform financial processes as we know them. 

What areas or technologies are you currently most excited by?

An area that excites me is social commerce. Social platforms already are playing a large role in discovery, and as tooling develops, they are enabling consumers to transact as well. 

I’m also particularly excited by the new wave of platforms that are helping consumers and businesses manage risk from financial losses. Startups are utilizing data in interesting ways to underwrite and also are enabling more convenient ways for consumers to access these services. 

Options trading Croom Beatty, Menlo Ventures

options trading Croom Beatty

Menlo Ventures principal Croom Beatty.

Menlo Ventures


What excited you about venture?

Working in venture is like never leaving school. Every entrepreneur you meet with is an expert in a field and each meeting is a learning experience. Constantly learning and realizing how little I actually know makes every day exciting, humbling, and a growth opportunity.

What problems or inequities do you hope fintech startups address going forward?

I hope fintech can address financial literacy and bloat. 

Financial literacy means making it easy for the layman to understand and then optimize investing, taxes, and access to capital. The fact that a wealthy person pays so much less for financial services and products and has access to financial products that the mass market does not have, only widens the wealth gap.

Bloat refers to things like regulatory creep and manual processes that push costs down to end consumers. Anything that reduces those costs will have a positive impact on consumers’ lives. 

What opportunities do you see for fintech investors in the next 6-12 months?

I think there is a massive opportunity to address how healthcare is bought and sold, and making that process more transparent, efficient, and cheaper for end consumers. I also think that more and more companies that tangentially are in high-value flows will start to be able to monetize those flows and embed payments into their products.

Compliance software for financial institutions also remains an exciting area. Ten percent of the workforce at large banks is tied to compliance, so I am excited to see more and more manual functions in that space become automated.

What are some of the biggest challenges facing the fintech industry right now?

A lot of “fintech” companies aren’t actually technology companies. It will be interesting to see how “next-gen” financial services companies like MGAs or carriers in insurance tech ultimately trade in the public markets. In the private markets they’re trading like SaaS companies, but in the public markets, there are low revenue multiple public companies that could take some air out of the market if valuations drop. 

Options trading Jayni Shah, Accomplice VC

options trading Jayni Shah

Accomplice VC principal Jayni Shah.

Jayni Shah


What excited you about venture, and why did you decide to join your firm?

Venture investing is far from one-dimensional. It’s complex and nuanced – especially at the early stages when it’s less about financial-engineering and more about company-building. 

I joined Accomplice to partner with those visionary founders who aren’t just creating paper value by financially engineering existing businesses in legacy markets but instead are disrupting legacy industries and creating whole new markets.

What drew you to fintech investing?

In high school, I spent a summer developing a microfinance program in a village in Gujarat, India. I saw first-hand how access to good financial services was life-changing for women in that rural community. That experience sparked my interest in financial inclusion and how it can be accelerated through new technologies. 

What societal problems or inequities do you hope startups in this category address going forward?

A lot of financial innovation in the US has excluded older people. Fintechs have long been obsessed with capturing young customers to maximize the lifetime value of their products. It’s not uncommon to hear startups say they aim to “acquire customers early and grow with them.” Very few people are building solutions for aging consumers even though they represent a massive market opportunity – there will be more than 70 million retirees in the US by 2035. Americans are now living longer with rising healthcare costs, fewer savings, and growing debt burdens. I hope more startups will build financial tools for seniors and address pain points in areas like estate planning, home equity, and long-term care. 

What areas or technologies are you currently most excited by?

We are seeing a step-change in the adoption of online payments during COVID, especially as e-commerce dominates brick-and-mortar retail. Having grown up in India, I’ve been closely monitoring how India’s Unified Payments Interface (UPI) initiative has become a runaway success.

Unlike the US, where merchants pay 2-3% of total transaction volume to process payments via Stripe, PayPal, or Square, UPI enables merchants to accept payments far more cheaply. I strongly believe that better payments infrastructure is a crucial building block for the future of the internet and I’m excited to back companies in the space.

Options trading Mike Giampapa, Bessemer Venture Partners

options trading Mike Giampapa

Bessemer Venture Partners senior associate Mike Giampapa.

Bessemer Venture Partners


What excited you about venture, and why did you decide to join your firm?

I’ve always viewed venture capital as this special intersection between technological innovation, entrepreneurship, and investing. It’s the most intellectually stimulating job I can think of and one where creativity and going against the grain is often rewarded.

I found Bessemer’s thesis-driven investment style really compelling and intellectually-stimulating. We spend lots of time researching, synthesizing, and presenting our roadmaps internally and this work is the foundation of us building conviction to invest in a business. It also allows us to be much more helpful strategically as we engage with founders and companies.

What opportunities do you see for fintech investors in the next 6-12 months?

Two of the most significant opportunities I see are in helping small suppliers and vendors get paid faster by large buyers, and in helping hourly workers get paid faster than the traditional bi-monthly payroll cycle. As we’ve seen clearly during the COVID crisis, small and medium businesses and hourly workers are disproportionally affected by economic downturns. We’ve seen many players during the last wave of fintech innovation try to solve these problems, but I expect to see new software and direct to consumer players emerge to help close the gaps on these inefficiencies.

What areas or technologies are you currently most excited by?

As a result of COVID, we’re seeing financial institutions across every major vertical double-down on their digitization efforts and accelerate their roadmaps significantly. At the same time, we’re seeing no shortage of innovation from consumer fintech companies and large technology incumbents embedding financial services into their product offerings. All of this together is a massive boon for many infrastructure and developer platform companies providing modern software solutions.

What is your advice for young professionals hoping to break into fintech venture investing?

Venture firms are looking for people who have some combination of deep domain expertise, unique networks & information flow, and some level of investment acumen. To break into the industry, you certainly don’t need to check the box in all three areas, but it’s a good framework to think about where your strengths lie and what you’ll need to work on.

Options trading Brian Moon, Norwest Venture Partners

options trading Brian Moon

Norwest principal Brian Moon.

Norwest


What excited you about venture, and why did you decide to join your firm?

As a former investment banker, I had the opportunity to work with a number of Fortune 500 companies, but I felt like I never had a true sense of how those businesses operated.

Venture has really given me the opportunity to see firsthand what it takes to build a company, as well as focus my time in areas that I’m actually excited to learn more about.

What ultimately sold me on joining Norwest were the people and the independence I was given as an investor. The partners I work with closely are all genuine individuals that have also been amazing mentors. 

What drew you to fintech investing?

On my first day at Norwest, Plaid was the very first deal I worked on. So it was a bit fortuitous but I grew to really love the space during the diligence process. 

What societal problems or inequities do you hope startups in this category address going forward?

Traditional banking is broken for the average American. Everyone has experienced the frustrations with hidden fees and hefty overdraft charges, and it’s an even more acute issue for the 100 million Americans living paycheck-to-paycheck.

We invested in Dave because they are trying to reinvent the financial experience for everyday consumers by offering non-recourse cash advances to help people manage their finances between paychecks and avoid costly overdraft fees. 

What is your advice for young professionals hoping to break into fintech venture investing?

Fintech is a super broad category. I recommend that young professionals take the time to figure out what niche area of fintech in particular that they’re genuinely excited about, then become an expert in that area and develop a clear viewpoint.

I’ve found that you’ll have a totally different level of conversation with founders when they sense that you actually understand the space. Also, as a VC, I recommend having fun playing around with the latest fintech apps! My phone is filled with a bunch of brokerage, personal finance, and banking apps that I’ve signed up for and it’s been a great way to stay on the cutting edge.

Options trading Mercedes Bent, Lightspeed Venture Partners

options trading Mercedes Bent

Lightspeed Venture Partners partner Mercedes Bent.

Lightspeed Venture Partners


What excited you about the venture, and why did you decide to join your firm?

I wanted to see more women and people of color starting venture-backed startups and I believed if I became a VC I could better enact the change I wanted to see.

As an operator I was wholly focused on my company and our industry. While I loved the deep sector expertise and focus this helped develop, I wanted to learn how to analyze businesses with a birds-eye view.

What drew you to fintech investing?

Underrepresented groups in the US, such as Black, Latinx, and Indigenous communities, have historically had lower rates of financial inclusion and wealth creation despite being large creators of cultural value. I’m excited by the possibility of fintech to change that. 

What problems or inequities do you hope fintech startups address going forward?

Fintech has the opportunity to create more culturally relevant funding platforms, turn every mobile phone into a credit card, and turn every convenience store into an ATM. 

What are some of the biggest challenges facing the fintech industry right now?

There has been a surge in people needing capital to stay afloat after losing their jobs because of COVID. This has been both an opportunity for small-dollar lending companies but also a risk for greater defaults and risk models. Identifying the right response while also ensuring the sustainability of businesses has been a tough balance to hit. 

What is your advice for young professionals hoping to break into fintech venture investing?

Fintech can be an extremely daunting field for an outsider to break into. It’s not always as straightforward as understanding e-commerce businesses. 

Start by focusing on the brands you love, and think through what their payment stack looks like. What happens after they receive the money you pay them? Do they hold it or pass through the revenue? Which banks do they work with? What’s their cost of capital? How many transactions does the money go through to reach a bank? What does the payment stack look like? 

Options trading Jai Sajnani, NEA

options trading jai sajnani

NEA principal Jai Sajnani.

NEA


What excited you about venture, and why did you decide to join your firm?

I feel fortunate that I get to work with world-class founders and CEOs on a daily basis and help them build businesses that can drive real impact. Regularly engaging with some of the smartest people in the valley, including the leaders of companies like Robinhood, Divvy, Automation Anywhere, and Transfix is incredibly fulfilling.

NEA’s emphasis on company building really appealed to me as I was starting a career in venture. We don’t simply write a check. We look for investments where our expertise can have a meaningful impact on the company’s growth. The firm has a 40-year-history of backing visionary teams from inception to IPO and beyond, and I love working in a highly collaborative way with founders at all stages.

Venture affords a unique opportunity to view massively impactful technologies evolve from inception. I’m excited to work with the next generation of entrepreneurs expanding access to finance for consumers and businesses.

 What are some of the biggest challenges facing the fintech industry right now?

The current climate is a complex and difficult one for entrepreneurs to navigate. Some businesses are seeing a robust increase in demand, while others have seen pipeline run dry. As recovery will take time, it is important for founders in both situations to prepare for the long term and adapt to a culture of continuous reforecasting. The world is far less predictable than it was just a few months ago, and companies need to be able to move quickly and adapt to each new curveball that gets thrown.

Many interesting opportunities will arise from this time, and founders must think strategically to preserve resources and align their companies for continued growth. CEOs used to the offensive have had to learn how to play defense. All should be cautious about uses of cash, how to allocate headcount, and aligning research and development and existing product offerings with a buyer’s needs.

Options trading Natalie Luu, Lightspeed Venture Partners

options trading Natalie Luu

Lightspeed Venture Partners partner Natalie Luu.

Lightspeed Venture Partners


What drew you to fintech investing?

Investing in fintech allows me to empower startups that are building technology to help merchants get paid faster. The financial infrastructure in the US is over 20 years old, and it will take audacious founders to change how money moves and financial data is reconciled.

While working at my family’s small business for more than 10 years, I dealt with inefficient payment solutions and internal business software on a daily basis that were all impediments to running a successful business.

I’m drawn to fintech investing because I feel like I’m making an impact by ultimately helping businesses like the one my family runs get better economic terms in the future.

What are some of the biggest challenges facing the fintech industry right now?

In the US, the banking ecosystem is remarkably fragmented and closed. There are two hurdles the fintech industry is facing that would prevent a real-time payments (RTP) network from being turned on tomorrow: the lack of a unifying RTP rail across all banks in the US and real-time fraud solutions for bank-to-bank payments. For the fintech industry to overcome this, there would need to be a federal mandate for banks to comply with an RTP network.

What areas or technologies are you currently most excited by?

I spend the most time meeting founders building API-first payments infrastructure. In the last 10 years, there has been a meteoric rise of third-party payments software companies such as PayPal, Square, Stripe, and Adyen, which provide full-stack payments solutions to websites or merchants looking to accept payments.

As companies with transaction flow scale to large volumes, there is a trend of unbundling the payments stack in order to customize technology infrastructure suited to specific needs. Unbundling the payments stack means bringing aspects of payment processing and settlement in-house instead of outsourcing to a third-party provider. This allows an online business to more easily reconcile financial statements by having more granular data and capturing more profit per transaction by creating the optimal payments infrastructure stack. 

Options trading James Kuklinski, Spark Capital

options trading James Kuklinski

Spark Capital investor James Kuklinski.

Spark Capital


What excited you about venture, and why did you decide to join your firm?

Before Spark, I was an investment banker at Allen & Company, where I had incredible exposure to both mature public technology companies and private high-growth tech companies raising capital.

I joined Spark for many reasons, but most important was the caliber of the people here – all incredibly sharp, humble, and collaborative with a true desire to win and help founders succeed.

What drew you to fintech investing?

At Spark, we’ve had a front-row seat to the explosion of consumer fintech companies, particularly through our investment in Plaid in 2013, where we saw both large and small grow tremendously by providing new and intuitive digital experiences to consumers. The opportunity ahead is still massive as more and more software companies offer financial products to consumers and incumbents modernize their infrastructure.

Fintech broadly is a fascinating area given the variety of business models in the category and regulatory complexity in each subsector.

 What opportunities do you see for fintech investors in the next 6-12 months?

Recently, there’s been a massive acceleration of existing trends in both fintech and enterprise software as a result of COVID-19. We’ve seen the power of fintech companies in administering Paycheck Protection Program loans to small businesses, as well as the software companies powering institutions processing loan applications.

Every company is becoming a fintech company, and all financial services companies should become fintech companies – and that trend has only accelerated recently.

What areas or technologies are you currently most excited by?

I’m excited by companies building the new infrastructure for financial services companies. As these platforms continue to improve, many companies will choose to work with a best-of-breed third party vendor, as opposed to building in-house.

What is your advice for young professionals hoping to break into fintech venture investing?

Folks in the VC community are more open to chatting than you might think. I’d suggest reaching out to investors and firms you admire and try to build relationships over a long period of time. VCs are always sourcing, and that includes the next great investor to join the firm. 

Options trading Amol Helekar, TCV

options trading Amol Helekar

TCV principal Amol Helekar.

TCV


Why did you decide to join your firm?

I joined TCV because I sensed that the firm has a strong mentorship culture – where experienced, successful growth equity investors help young, aspiring investors learn about growth equity investing, markets, technology sectors, and to help grow the firm.

What drew you to fintech investing?

Financial services are a major part of the global economy and have in many ways lagged other sectors in digitization.

I believe that digitization of the financial services sector is a massive multi-generational opportunity that can transform markets in every vertical and help provide important services to portions of our population who haven’t had access before.

What opportunities do you see for fintech investors in the next 6-12 months?

One opportunity is in startups building financial services distributed through system-of-record software. Companies such as Square, Shopify, Toast, Clio, and others have shown that system-of-record software is uniquely well-positioned to cross-sell a range of financial services products such as payments, short-term loans, and insurance. Companies that execute on this or enable this new distribution method are well-positioned.

Another is challenger banks – tech-forward, mobile-first banks that offer superlative consumer experiences are growing quickly and capturing share from legacy incumbents who have not kept pace. Companies such as Nubank, Revolut, Chime, Monzo, and others are executing against this strategy.

What are some of the biggest challenges facing the fintech industry right now?

After a period of strong growth, many investors are now emphasizing the importance of unit economics and growth balanced with profitability. As a result, companies are having to demonstrate the strength of their business models and focus on the parts of their businesses that have strong unit economics to attract capital.

Given the recent issues of Wirecard, there is heightened skepticism of the fintech ecosystem. It is an opportunity for all fintech companies to take steps toward improving their controls, security protocols, and demonstrating trust for their customers and counterparties.

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