Stocks might be soaring over the summer. But the headlines of late have been filled with dour reflections over fintech investment in the first half of 2023. The first half of the year – and the second quarter in particular – have been tough on fintechs seeking funding. But here are five reasons why fintech funding in the second half of 2023 – and beyond – is likely to be better than the first half.
The first half was pretty bad
One of the reasons why the second half of the year might see higher levels of fundraising in fintech is because the first half has set a fairly low bar. In its analysis of H1 fintech investment this year, S&P Global Market Intelligence noted that Q2 2023 was the “slowest quarter on record over the past two and a half years” in terms of deal count. In the U.S., H1 funding was down 28% from the previous year. Declines in the U.K. were even more severe, with H1 2023 trailing H1 2022 by a whopping 83%.
S&P Global Market Intelligence was careful to add that while the slowdown in investment impacted the first half significantly, the declines began late last year rather than at the beginning of this year. And while the report writers expressed anxiety over the continued low deal count, the report did note approvingly overall deal value growth, the potential for a stabilization in interest rates, and the underlying robustness of digital trends in financial services as factors that support a recovery in the second half of 2023.
About that recession
Despite layoffs in the tech sector and high-profile tremors in the banking industry like the collapse of Silicon Valley Bank, the widely anticipated recession – and its accompanying 5%+ unemployment rates – has yet to occur in the U.S. or Europe. As economic confidence grows, and the date for a potential economic slowdown gets pushed further into the future by economists, investors are likely to feel more comfortable putting capital at risk.
In addition to the potential for moderation on the interest rate front mentioned above, S&P Global Market Intelligence also highlighted the fact that many venture capitalists remain “flush with cash.” According to Pitchbook, the money available for investment by venture capital is at an all-time high of more than $279 billion for U.S.-based funds alone. That capital will only remain on the sidelines for so long.
Curbed enthusiasm
The popular embrace of emergent GenerativeAI solutions helped give the technology industry writ large a boost at a time when the focus was on shrinking workforces and a sense of stagnation in terms of post-smartphone innovation. At the same time, the strong but relatively muted response to Apple’s metaverse-manifesting VisionPro suggests that market for innovation is still strong, but it may be a little more sober than it’s been in awhile.
This could be a particular benefit for fintech companies where the solutions and services are geared toward clear human challenges in a way that some other areas of technology are not (more on this later). As investors return to the market in search of promising startups, those companies in industries with proven ways of using enabling technologies like automation and machine learning could see early interest.
More tech layoffs, More tech companies
It can be a delicate point. But in the same way that companies like Facebook and YouTube emerged from the wreckage of the dot.com bust, and Airbnb and Uber (and Finovate!) were born out of the ashes of the Great Financial Crisis, one door closing in the economy often signifies the opening of another. The talent that is leaving some of the biggest and most successful technology companies in history is likely to go on to launch and staff the next round of big, successful technology companies. Savvy investors know this, and will be watching to see who ends up where, and what they are up to.
Work the problem, people
One thing that I appreciate about Finovate conferences – and all similar events, to be honest – is that they are a live, in-person reminder that there are people – many of them younger than you and me – who are enthusiastically pursuing solutions to problems in their lives, the lives of their friends and loved ones, as well as the communities they belong to and care about. They tend to not have a lot of time for fear, doubt, or lamentations about what can’t be done. Instead they are more likely to embrace the old motto: lead, follow, or get out of the way.
As long as there individuals who need help sending money to relatives overseas, families struggling to save for the future, businesses looking for ways to make their services both more profitable and available to more customers, there will be fintech innovators building solutions for them. And few people know that better than the investors whose vision and commitment has help make and will continue to help make those solutions possible.
