As one venture capital investor recently described it to me, it feels like a “tough” time for fintech right now.
Though VCs invested record amounts of cash into fintech startups in 2021, per PitchBook data, deal value tumbled in 2022. Many investors predict the funding environment will remain tricky this year, but they’re still super upbeat about the sector: “The opportunity is so large and could dwarf most of software as these business models figure it out,” Jesse Wedler, a general partner at Google parent Alphabet’s independent growth fund, CapitalG, told me on a recent visit to their San Francisco office.
But where are VCs seeing opportunity, and what do they predict will happen to and change in the buzzy space this year? I recently polled eight top VC investors on what they’re thinking for 2023, and their predictions range from which type of startup is “under the radar” to why we’ll see a trend toward more “tailored” financial products. You can read the full story here, but below are a few highlights.
CFO tools will be ‘in vogue’
Bain Capital Ventures’ partner Christina Melas-Kyriazi believes tools that help CFOs do their job “with higher accuracy and with [fewer] people are going to be in vogue, because there’s a few things happening,” she said, one of which is, “Business models are changing, so there’s more usage-based business models and it’s getting more complex to know what your revenue and expenses are at any point in time, and you’re facing downward pressure from the market. Maybe you need to cut headcount; you need to cut costs. So tools that help CFOs do that are going to…have even more tailwinds than they already have over the last few years.”
Safety in software
When broader economic times are tough, some business models (like those predicated on lending, for example) may struggle. CapitalG’s Wedler predicts consumer fintech will be “challenged” in 2023, but that VCs will be flocking to “the safer business models” over the next 12 months, like software selling to banks and other financial services providers. “That’s just a very easy-to-understand, software-type business model that’s typically lower risk, lower burn.”
A fintech boom in Israel
Laura Bock, a partner at fintech-focused VC firm QED, said that on a recent trip to Tel Aviv with the firm, she and her team were “inspired” by innovation coming out of Israel. She predicts that “We’ll see more fintech winners emerging from that geography, following the footsteps of Payoneer, Melio, and Next.”
A.I. + fintech
In case you hadn’t noticed, artificial intelligence is on the brain for VCs, as I and others have written about recently. Grace Isford, a partner at Lux Capital, is betting that in 2023, “We’ll see large language models penetrate fintech.” She argues that, “Building upon existing [machine learning and A.I.] adoption, it will become table stakes for fintech companies to leverage large language models to process and prioritize claims, coordinate workflows, improve banking services, and bolster risk management for payments and underwriting.”
For the rest of the fintech predictions from VCs at Bessemer Venture Partners, Accel, and others, check out my story here.
See you tomorrow,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
Correction, Jan. 10, 2023: The online version of this newsletter has been updated to reflect that Paya is based in Atlanta and to clarify GTCR’s relationship to the business.
VENTURE DEALS
- Monogram Health, a Nashville-based in-home evidence-based care and benefit management services provider for patients living with polychronic conditions, raised $375 million in funding. CVS Health, Cigna Ventures, Humana, Memorial Hermann Health System, SCAN, TPG Capital, Frist Cressey Ventures, Heritage Group, Pura Vida Investments, and Norwest Venture Partners invested in the round.
- Chronosphere, a New York-based cloud-based applications monitoring company, raised $100 million in funding led by GV, according to The Information.
- Synthekine, a Menlo Park, Calif.-based engineered cytokine therapeutics company, raised $100 million in Series C funding led by The Column Group.
- Brick&Bolt, a Bengaluru, India-based home construction company, raised $10 million in funding co-led by Accel and Celesta Capital.
- C14, a New York-based payments platform for Web3 businesses, raised $2.5 million in funding led by General Catalyst.
PRIVATE EQUITY
- Vista Equity Partners agreed to acquire Duck Creek Technologies, a Boston-based property and casualty insurance company, for $2.6 billion.
- Beach Point Capital Management acquired a majority stake in Botanical Designs, a Seattle-based commercial landscaper. Financial terms were not disclosed.
- Lacerta Group, an SK Capital portfolio company, acquired the assets of Portage Plastics, a Portage, Wis.-based thermoformed packaging products manufacturer. Financial terms were not disclosed.
- Golden Gate Capital acquired a majority stake in Parallel Advisors, a San Francisco-based wealth management firm. As part of the investment, Parallel Advisors also acquired AUTUS Asset Management, a Scottsdale, Ari.-based asset management firm. Financial terms were not disclosed.
- Next Level Apparel, a Blue Point Capital Partners portfolio company, acquired Stedman, an Aachen, Germany-based casual and sportswear design and manufacturing company. Financial terms were not disclosed.
- Omega Systems Consultants, a Pfingsten portfolio company, acquired The TNS Group, a Stamford, Conn.-based managed IT, security, and disaster recovery services provider. Financial terms were not disclosed.
- PNC Riverarch Capital acquired Backerhaus Veit, a Mississauga, Canada-based European-style bread producer, from Swander Pace Capital. Financial terms were not disclosed.
EXITS
- Nuvei Corporation agreed to acquire Paya Holdings, an Atlanta-based payments platform. Paya is a portfolio company of GTCR. The deal is valued at $1.3 billion.
OTHER
- AstraZeneca agreed to acquire CinCor Pharma, a Waltham, Mass.-based biotechnology company, for as much as $1.8 billion.
IPOS
- WeDoctor, an Hangzhou, China-based online healthcare solutions platform, plans to file for an initial public offering by the end of April in either the U.S. or Hong Kong, according to Bloomberg. Tencent Holdings backs the company.
PEOPLE
- Battery Ventures, a Boston and San Francisco-based investment firm, promoted Zak Ewen to partner.
- Clayton, Dubilier & Rice, a London and New York-based private equity firm, hired Dan Glaser as an operating partner. Formerly, he was Marsh McLennan.
- EnCap Flatrock Midstream, a San Antonio-based investment manager, promoted Brett Knowles to managing director.
- Infinedi Partners, a New York-based private equity firm, promoted Dan Conlon to vice president.
- Patron, a San Francisco and Santa Monica-based venture capital firm, hired Amber Atherton as partner. Formerly, she was with Discord.
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