VC investment strategies

FinTech investment from VCs continues to pour into the market, filling the pockets of a plethora of sub-sectors under the FinTech umbrella. 2019 saw $33.9B worth of investment, and while this is a decline from 2018’s $40.8B, it is worth noting that Ant Financials recording breaking $14B deal in Q2 of 2018 weighed in heavy into the previous year’s results.

As the industry matures, with fewer, but higher value deals, investment is showing no signs of slowing down in the coming years. What is more ambiguous, is where these investments will go.

Moving away from early-stage investments

Fuelled by the success of early investors in Google, Amazon, and Facebook, VCs have been known to make high-risk investments in early and even seed-stage start-ups. However, over the past year, we have seen VCs moving away from these, taking more of a ‘wait-and-see’ approach, banking on larger investments into fewer, more established contenders.

Statistically, early-stage companies are more likely to fail within their first year. Accompanied by the handholding required and the time it takes to benefit from any returns on growth, early-stage funding dipped in 2019, while late-stage funding reached a five-year high.

Developing regions present an exception to this trend. Latin America, Southeast Asia, and Africa are regions in their relative infancy but due to their large underbanked population, they are recognised by VCs for having vast potential and set new funding records. In fact, 2019 saw mega-funding rounds on every populated continent, including, for the first time, Africa.

B2B investment is on the rise

While deals and funding in 2019 were predominantly B2C focussed, interest in the B2B space is also increasing. In January 2020, VC investors hinted that the year was set to be a busy one for the B2B space when the industry raised over $1B in just one week.

One factor contributing to this could be the expensive customer acquisition within the B2C space – customer-facing companies are known for spending fortunes on building a customer base in order to achieve growth, and while revenues and user figures often look impressive, few are profitable. This is not to say that B2C will not continue to flourish but investors are likely to become more discerning of the challenges of the sector.

Infrastructure providers are a sure bet

Investing in infrastructure may not seem glamorous but the established platform players show no sign of going away – instead, they are solidifying their positions and acquiring niche players to expand their offerings and offer more end-to-end services.

As a result, we anticipate increased interest from investors in infrastructure providers under the pretence that they will likely be incorporated into a larger, more established ecosystem.

As we prepare for another busy year of investments, the consolidation within the maturing FinTech industry is evident and in response to this VCs will gear up for even bigger, more strategic investments