Sector: Technology

8 Fintech VCs Discuss the Shifting Investing Landscape and How to Pitch Them in Q3 2022

The downturn has not changed our investment themes at all. We invest on five- to 10-year themes, not one to three years, and the digitization, democratization and encapsulation of financial services are only beginning.

Amid rapidly changing market conditions, TechCrunch asked eight venture capital investors about what fintech investors are looking for right now and what entrepreneurs should understand before approaching them.

Note: this story is available to TechCrunch subscribers only.

David Jegen is quoted at length in TechCrunch. Read David’s perspective here.

Teleo

Teleo is revolutionizing heavy equipment operations by turning construction and mining equipment into semi-autonomous robots. Their Teleo Supervised Autonomy technology lets contractors operate existing heavy equipment without an operator in the cab, letting a single operator control multiple pieces of equipment from a remote desk. This increases productivity, safety, and operator satisfaction — critical challenges in the construction and mining industries. Teleo is backed by UP.Partners, F-Prime Capital, K9 Ventures, YCombinator and a host of industry luminaries.

The Next Wave of Autonomous Vehicles

Announcing our investment in Teleo

Six years ago, in March 2016, GM’s $500M acquisition of Cruise sparked the AV race. Within the next twelve months, Uber acquired Otto for $680M, Waymo was spun out from Google, and future unicorns Argo AI, Nuro, and Aurora were founded. Over the ensuing six years, these companies alone raised over $25 billion, and numerous other AV start-ups were launched. However, the path to autonomy has proven to be a difficult one. Despite massive capital investments, only in the last few months have Cruise and Waymo received permits to operate driverless robotaxis in select areas of San Francisco and Phoenix, though coverage areas are limited, the ride experience is more of an MVP than a fully-fledged service, and expansion to other parts of the US will take many more years.

One by-product of the excitement and technology development around autonomous vehicles has been entrepreneurs beginning to explore non-consumer use cases for AV. There are massive markets for industrial vehicles used in sectors such as construction, mining, agriculture, and logistics that are ripe for automation. Entrepreneurs have recognized that these markets are large, the value proposition for autonomy is high, and the path to success is less daunting than that for passenger vehicles.

The value proposition for industrial autonomy is compelling across many dimensions. These vehicles often operate in challenging or hazardous environments, leading to high safety risk and low operator willingness to take these jobs. Reducing reliance on human operators has obvious safety benefits and minimizes escalating costs and project delays when skilled operators are increasingly difficult to find. Technologically, the operating environment for these vehicles is more constrained and less complex than passenger roads, resulting in much faster development cycles. Also, the vehicles operate at low speed, meaning the solutions are more fault tolerant and often enable a remote, human-in-the-loop strategy to overcome issues or to deal with complex situations. The last point is particularly interesting as many of the solutions enable operators to remotely oversee multiple autonomous vehicles at a time, thus enabling people to intervene when needed to overcome complex situations, while routine tasks are automated.

We are also starting to see increased interest in the technology from leading OEMs of industrial vehicles. For example, John Deere has made 2 large acquisitions — Bear Flag Robotics (autonomous tractors) and Blue River Technology (autonomous spraying), and Caterpillar has launched an autonomous mining vehicle. The interest from OEMs is important as they are critical technology partners, they heavily influence customers and the dealer networks that are required to scale, and they help create a vibrant funding ecosystem.

At F-Prime, we are strong believers that this next wave of autonomy is ripe for investment, and we are excited to announce our most recent investment in Teleo. Teleo is targeting the mining and construction industry with an OEM-agnostic autonomous technology to retrofit contractors’ existing heavy equipment, turning them into semi-autonomous robots. The solution enables an operator to remotely oversee multiple machines from the comfort of a desk, thereby improving labor productivity, minimizing safety risk, and expanding access to these jobs. Furthermore, Teleo has seen significant interest in their solution from existing dealer networks, which they are leveraging for sales, service, and support. These dealers are highly trusted suppliers to the end customers whom they serve and are an important channel for educating the market of the value of automation.

Teleo is a great example of the next wave of AV companies, though there are many others. Burro, also an F-Prime portfolio company, is building an autonomous vehicle for transporting manually harvested row crops from the field to a packing station. This highly labor-intensive, low-skilled activity, often conducted in peak summer temperatures, is perfectly suited for automation. Fox Robotics and Third Wave Automation are building autonomous forklifts for warehouse operations. Movement of pallets in and out of trucks and around a warehouse is a significant source of labor cost in logistics centers, yet in most situations is a highly routine activity that should be automated. Electric Sheep Robotics is automating commercial lawnmowers. Commercial land maintenance is a massive market with largely routine activities which can be automated. These are just a few of the many examples, and the pace of development is only increasing. At F-Prime, we are incredibly excited to see the next wave of autonomy transform these legacy industries through higher productivity, improved safety, and greater worker satisfaction.

Silq

Silq is on a mission to bring radical visibility and real-time data from the factory floor to brands around the world, powering sourcing, manufacturing and shipping for apparel, footwear, home goods and accessory brands. Their on-site experts provide real-time updates into the production process directly from the factory floor. Paired with Silq’s proprietary technology platform, brands are able to accelerate speed-to-market and improve product quality. Customers include direct-to-consumer (DTC) and wholesale fashion and apparel brands such as Barry’s, Mightly, Mizzen+Main and Lambert in addition to design and production houses such as Pinpoint Merchandising and Stars Design Group.

Canary Technologies

Canary Technologies is modernizing the hotel tech stack, with the first mobile web end-to-end Guest Management System, digitizing everything from post-booking through checkout. Trusted by thousands of hotels in more than 65 countries, including Four Seasons, Choice Hotels, Standard Hotels and Ace Hotel Group, Canary’s solutions help hotels eliminate paper processes, boost revenue with upsells, raise staff efficiency, ensure PCI compliance, improve the guest experience, and reduce chargebacks and payment fraud.

Canary Technologies: Reinventing the Hotel Tech Stack

The travel industry keeps bouncing back

Travel and hospitality is one of the most enduring and resilient industries in history. Driven by unbounded human curiosity and our innate desire to explore, the industry has overcome wars, recessions and most recently, a pandemic. It is also an industry that has traditionally prioritized in-person service and experience, placing technology in the backseat.

In the past decade, this focus on experience fueled the creation of B2C startups such as AirBNB, OYO and GetYourGuide who combined great customer experience with scalable tech to build massively successful companies. And while these disruptors still represent a tiny fraction of the overall travel and hospitality market, they have awoken the giants to the fact that technology can transform the guest experience while being a critical business driver. This has sparked a new wave of B2B startups that are transforming travel and hospitality sub-industries at a blazing pace: e.g. Toast* and Lightspeed in restaurants, SiteMinder and OTA Insight* in hotels and TripActions and Travelperk in corporate travel. We continue to see tremendous opportunities for more.

We are excited to announce our investment in Canary Technologies, the hotel industry’s first platform to provide extraordinary, end-to-end digital experiences from guest management to hotel operations. There are one million hotels in the world – imagine your favorite having no lines, no calling, no waiting, and no paper processes. A hotel powered by Canary offers seamless mobile check-in to breeze through the lobby upon arrival. A few clicks from your phone to order a ‘nice-to-have’ item to be waiting in the room (e.g., a bottle of champagne to bring to an event). A much-improved guest messaging experience for concierge and service requests. Payments capabilities lying underneath all those touchpoints. Canary is building the modern hotel technology stack to enable all hoteliers to deliver incredible guest experiences.

We first met Harman and SJ when they went through YC in 2018 and were blown away by their optimism, product instincts, and hotel industry expertise. They had a compelling vision for how software should transform the hotel guest experience, but also understood the quirks and challenges of selling into the hotel space (dealing with chains and brand standards, management companies, etc.). The industry is rampant with paper processes, archaic technology (e.g. the two most widely adopted property management systems are 30 and 45 years old, respectively) and a service mindset that often throws people at every problem (google “night auditor” job spec). Consequently, it takes entrepreneurs who can build trust and speak the hotelier’s language, focus on the end consumer and understand the dynamics of the many parties involved in tech buying. Harman, SJ and team have navigated the ecosystem with incredible a clear vision to bring forward the future of travel.

During the depths of the pandemic, we saw Canary conduct its business with empathy and patience, while delivering mission-critical products to help ensure hotels thrive and consumers feel safe. This care and customer focus since their founding only a few years ago has enabled Canary to be deployed at thousands of hotels and build meaningful relationships with some of the most influential hotel brands in the world. We’re honored to partner with this team on their Series A (along with our friends at Thayer Ventures and Commerce VC) and are excited to see them empower more hotels to deliver exceptional guest experiences around the globe.

* F-Prime Capital portfolio companies

Rocio Wu

Rocio Wu is a Partner at F-Prime leading investments in FinTech and Enterprise software. Previously, she was an investor at Liquid 2 Ventures (founded by NFL hall of fame quarterback Joe Montana) where she invested in companies like Chipper Cash (an African cross-border payments company) and Overjet (artificial intelligence for oral healthcare). She was also a Sequoia Scout and an angel investor in Inworld.ai (developer platform for creating AI-powered virtual characters) and others still in stealth. Before investing career, she worked at Google and Amazon in a variety of operating roles such as CorpDev, GTM Strategy, Marketing across the U.S., Japan, Spain and China.

Rocio is a community builder and is involved in multiple groups that support the involvement of women and minorities in technology, including Xooglers, HBS Circles, and LatAm entrepreneurs. She’s physically based in the Bay Area, but you can often find her traveling to LatAm and other parts of the world learning about different cultures and ideas. Rocio holds a M.B.A. from Harvard Business School and a B.A. from Shanghai International Studies University (joint program with Universidad Pontificia Comillas in Spain).

Tracking the Disruptors With The F-Prime Fintech Index

The F-Prime Capital team conducts extensive primary market research on the global fintech sector. We closely track and benchmark the performance of established and emerging fintech companies, some of which belong to our portfolio of investments.

2021 was a record year for fintech investments and exits and there has never been a better time to look at the sector’s performance and take stock of the tremendous disruption that has occurred over the last 10 years.

Fintech began as a sleepy niche of companies selling technology to financial institutions. Venture capital investments averaged a mere $1B per year. The last five years have seen an explosion of disruptive startups. What began as new, digital front doors to the traditional financial industry has developed into an entirely new financial infrastructure. While payments and lending were first to ignite, fintech companies have captured market share across all financial sectors, including banking, insurance, asset management, and proptech. This fintech disruption has been fueled by over $283B of venture capital since 2015, including nearly $120B in 2021 (35% of decade’s fintech venture investments).

 

The F-Prime Fintech Index

Perhaps the most exciting news for the industry is that we are finally seeing fintech companies exit with increasing velocity. In 2021, there were a record 77 fintech companies that listed for over $393B. Eight of the ten largest fintech exits in history took place in 2021, and public fintech companies have surpassed $1.3 trillion in market cap. For the first time since working in fintech, we have enough public fintech companies to create a meaningful tracking index.

 

Today, we are excited to reveal the F-Prime Fintech Index. The F-Prime Fintech Index is composed of publicly traded companies powering the disruption of financial services. It features fintech companies listed after 2000 that meet our criteria for market capitalization, revenue growth, listing exchange, and daily trading volumes. For a complete description of our methodology, please visit the F-Prime Fintech Index website. The F-Prime Fintech Index companies trade at 11x average revenue multiples and have realized 62% average annual revenue growth. The F-Prime Fintech Index will enable all of us to benchmark the development of this rapidly-maturing sector and closely track the leading disruptors.

The F-Prime Fintech Index has surged 1,132% since 2015 when three leading companies (Block fka Square, Shopify, and PayPal) were listed. This gain compares favorably with the NASDAQ Index, up 223%, and the S&P 500, up 119% in the same period. The F-Prime Fintech Index has outperformed the S&P 500 and the NASDAQ by nearly 1,000% and 900%, respectively.

 

Tracking the State of Fintech

To accompany the launch of the F-Prime Fintech Index, we have also published a State of Fintech report. This report details the drivers of the disruption and depicts the striking advances made by fintech startups. Today we have published an overview of the industry and a deep dive into the payments and banking sectors. Soon, we will release an analysis of other sectors, including insurtech, asset management, crypto, proptech, and more.

 

Fintech has become one of the most significant segments in tech venture capital over the past five years, rising to nearly 35% of total tech venture funding in 2021, up from 11% in 2011. In 2021, fintech funding hit unprecedented levels, nearly tripling the 2020 value of $44 billion. The sector has surpassed the $100 billion+ funding mark in a single year for the first time and is increasingly going global.

 

There have been many forces fueling the growth in fintech funding. Some growth is simply a function of early startups raising larger, later-stage rounds with private capital markets ready to provide capital. In 2021, a record 312 deals fetched $100 million+ or more and fueled the creation of 157 new fintech unicorns. Globalization is another factor as fintech companies in Europe, Latin America, Africa, South East Asia & India follow early successes in the U.S. and China. Covid plays its role, providing a strong tailwind behind consumer adoption of digital payments, banking, and commerce.

However, a more profound explanation is that the early startups that did the heavy lifting of building API-first financial infrastructure laid the foundation for future startups to launch financial services faster and at lower costs. Thanks to companies like Marqeta, Plaid/Quovo (an F-Prime portfolio company), and SynapseFi, it has never been easier to launch a fintech company or embed financial services in non-fintech offerings. Indeed, as financial services have been digitized and embedded into other offerings, the very definition of fintech has expanded to include software vendors to hospitals, travel agencies, hotels, and restaurants.

Nowhere has disruption been more sweeping than in payments — the primary driver of fintech growth. Payments startups have attracted more than $118 billion in investments over the past decade. Natively digital payment processors like Paypal, Block, Stripe, and Adyen have captured a 32% share of total U.S. digital payments volume.

 The digitization of payments has led to a new class of software-first payments companies adding other financial products to their platforms. Public markets have rewarded these high-performing payments players with high valuations. Leading payment disruptors accounted for 74% of the F-Prime Fintech Index by market cap as of Q3 2021.

 

Akin to the rapid adoption of digital payments, we are seeing an acceleration of digital banking adoption spurred by the pandemic. This trend has fueled the rise of a new class of digital native banks or neobanks which have emerged as viable alternatives to large-scale banking institutions.

Consumers are attracted to neobanks by the digital experience, fee transparency, and novel features such as early-deposit access, overdraft protection, and multi-currency cards. Interestingly, many of the top neobanks did not start as banks but led with consumer-friendly services that leveraged a customer’s existing bank account.

While digital banks are still small by assets, they have attractive unit economics (low acquisition costs, growing revenue per user) plus efficient hyper-growth. Given their customer profile, they have significant room to increase their revenue base over their customers’ lifetime.

The rise of neobanks and gains by megabanks has ultimately squeezed regional and community banks, which have seen a 27 percentage point drop in new account openings since 2017. In response, many are increasingly collaborating with fintechs to accelerate their digitalization and personalization capabilities. And in turn, fintechs are leveraging the bank partner’s charter and earned reputation to accelerate their growth. We anticipate seeing more banking-Fintech collaborations to accelerate bank transformation, especially for regional/community banks and credit unions.

The fintech market is unlikely to cool soon – there are over 200 private fintech unicorns ($1 billion-plus valuation) globally – many of which have already filed to go public in the coming quarter or two.  We will use the F-Prime Fintech Index to track the performance of these companies in capital markets and anticipate adding nearly $500B to the index over the coming few years as fintech companies list.

 

Despite their remarkable rise, venture-backed fintech startups have also collectively captured ~10% or less of the financial industry revenue with plenty of room for growth.

Read F-Prime Capital’s State of Fintech report and visit the F-Prime Fintech Index website for more information. We welcome feedback and thoughts from the Fintech community as we continue to refine the Index. To reach the F-Prime Fintech Index team, email us and follow our Twitter/Linkedin to stay updated and join a future discussion.

Parrot

Parrot is a Mexican food tech startup that helps the country’s restaurants to digitize and optimize their operations through technology. Its ParrotConnect solution is an all-in-one platform for today’s restaurants: multi-brand and multi-channel, which allows the user to manage all business tasks from one device. Integrate orders from delivery apps, table service and take-away orders on the same screen, configuration of personnel permissions, menu editor, kitchen areas, types of payment, cashier operations, and real-time reports from a single management portal.

Notabene

Notabene is a reg-tech compliance SaaS solution that connects the traditional financial industry and crypto industry. The company works to make crypto transactions a part of the everyday economy by providing software, tools, and comprehensive data to manage regulatory and counterparty risks in crypto transactions.