Europe’s fintech sector has taken a hit amid the downturn and has seen a significant slowdown in both venture deal count and value.
So far this year, only €136 million has been invested across 19 European fintech deals, according to PitchBook data. While it’s too early to tell whether activity will rebound this year, investors are expecting fintech dealmaking to fall short of previous records and valuations to suffer.
“As we head into 2023, the situation for cash-starved fintech companies is likely to become even more challenging,” said Stefan Tirtey, managing partner at fintech investor CommerzVentures. “Many of the inside investors having footed internal rounds will have maxed out their reserves, leaving companies to find new investors externally who are likely to be more selective. We expect to see a growing number of down rounds, distressed sales and exits.”
Nevertheless, there is still plenty of capital in the market waiting to be put to work, and investors are sure to be on the lookout for startups that can buck the current trend. We reached out to five VCs active within the fintech space and asked them to share their thoughts on two startups—one in their portfolio and another that they have their eye on.
Stefan Tirtey
Managing partner, CommerzVentures (Frankfurt)
Elwood
“Elwood provides a full-stack platform enabling all types of financial institutions to access, trade and manage digital asset exposure. The comprehensive solution covers pre-trade, trade and post-trade activities. The UK-based company has seen phenomenal growth during 2022 in spite of the headwinds for fintech in general and crypto in particular.”
Carbon Future
“Germany-based Carbon Future is a promising company at the intersection of fintech and climate tech. Through their platform, businesses can build credible, long-term and diverse carbon removal portfolios, helping them to neutralize carbon emissions and reach their net-zero commitments.
“Customers such as Microsoft, Swiss Re and Klarna are working with Carbon Future to procure certified and auditable carbon removal credits. We foresee exponential growth in the technical carbon removal space, where Carbon Future is a key player connecting producers and buyers.”
Vinoth Jayakumar
Partner, Molten Ventures (London)
FintechOS
“FintechOS is a London-headquartered fintech infrastructure software company that radically simplifies the development and launch of financial products for banks and insurers around the world.
“Despite the challenging macro environment, CIOs of banks and insurers have historically increased capital expenditure through downturns. We expect a similar thesis to play out—marginally increased capital expenditure on infrastructure software will be incurred to reduce long-term overall cost to serve customers.”
Codat
“London-based Codat offers fintechs and financial institutions a universal API to build connected products for their business customers.
“Proliferation of customer level financial data is the holy grail in unlocking value for customers. In this environment, being able to develop and sell highly contextual financial products for SMB customers is more prevalent than ever—Codat unlocks this for SMBs.”
D’Arcy Whelan
Associate, Outward VC (London)
Kita Earth
“Kita offers carbon insurance for companies, reducing the risk that is inherent in the carbon offsetting market. The London-based company’s product protects buyers of forward purchased carbon removal credits against under-delivery, encouraging a greater flow of finance into these projects, and essentially into offsetting.
“The world is in a climate crisis and we need to derisk the purchasing of carbon offsetting for businesses. Kita is not just a category leader but an example of a business creating an entirely new category being the first of its kind to offer this type of solution.”
Supercede
“Also based in the UK, Supercede provides reinsurance software for cedents, brokers and underwriters, helping them to collaborate and transact more effectively, from the preparation of reinsurance programs all the way through to placements.
“The reinsurance market is huge and it’s crazy just how slow the industry is in terms of digitization and automation. Given what’s happening in the world with geopolitical and environment risks, this is the time when … insurers and reinsurers need to be thinking about how technology can help them save on costs and time. Supercede is already working with some of the largest insurers and brokers in the market and in this industry, it only takes a few big names to turn the heads of the rest of the market.”
Oliver Hammond
Investment director, Fuel Ventures (London)
Volt
“London-based Volt is a global gateway for open banking payments, powering the growth of real-time payments across the globe. Even in 2022, they grew incredibly well.
“I think that payments as a business will continue to do well this year. From an online perspective, payments don’t slow down. People may change what their spending their money on, but the movement from high street retail to online retail continues to increase.”
ComplyAdvantage
“We’re pretty confident in B2B fintech for this year, especially in the compliance space. Companies like London-based ComplyAdvantage are going to do very well in this market because people are much more focused on proper anti-money laundering checks and KYC.
“Businesses are more reluctant to take on high-risk customers and I think they’re going to increasingly invest money and time into making sure that the people they work with and clean and legit.”
Nicholas Sando
Fintech investor, Octopus Ventures (London)
Minimum
“Minimum is a carbon management platform built for enterprise customers. Measuring and managing scope 1-3 carbon emissions is particularly difficult for complex organizations. The London-headquartered company has solved this by building a single system of record to give total visibility of emissions and control of every aspect of carbon management.
“2023 is set to be a very interesting year for climate regulation as the Fit for 55 package puts pressure on regulators. The package includes proposals to reform high-profile schemes such as the cap-and-trade scheme as well as cracking down on carbon leakage through the offshoring of carbon-intensive activities. These reforms will keep paving the way for one of the most exciting opportunities in the fintech investment space.”
Bound
“Bound is an easy-to-use foreign exchange (FX) management tool geared towards scaling tech companies. Ninety-four percent of FTSE 500 companies hedge against FX risk, compared to only 4% of UK SMEs. Bound empowers the financial decision-makers of small and large tech companies to mitigate FX volatility in an affordable and simple way.
“It feels like we can continue to expect material FX volatility due to economic and political actions next year. We believe the fintechs who are solving FX risk for small and large companies will a have fantastic year throughout 2023 as they continue to solve an acute pain felt by most businesses involved in international trade.”
Featured image by Alones/Shutterstock
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