‘Twas that time of year again – this week’s Money 20/20 USA annual event in Las Vegas – this one being the second in-person gathering since the pandemic. In terms of turnout – numbers of people and companies – it did not disappoint. In fact, by my reckoning, it was one of the largest events on record. And in no way was this a bad thing. It’s not often one can string together so many in-person management meetings in such a small time window. For my team’s part, we focused entirely on meeting startup founders and strategic C-levels. We did not meet with financial sponsors, large or small.
Financial sponsors are in a state of flux as they continue to work through a normalization process as a result of three fundamental challenges:
1) the downward revaluation of existing holdings causing a need to get higher returns on new investments
2) having to allocate previously raised capital in an environment with fewer quality investable assets, but with a relatively unchanged number of funds still looking to deploy
3) the pressure to provide attractive return to existing limited partners, and raise funds from new ones, while competing against high interest, fixed-income alternatives
Fortunately for us, and perhaps counterintuitively, these challenges are driving a seller-friendly market dynamic for quality assets seeking capital and /or exits.
But I digress…
Of the fintech creators, builders, and innovators my team met with this year, there emerged a perceived divergence in asset quality, characterized by strength of long term viability. Granted, in today’s challenging environment, proprietary technology, a compelling growth story, and a short-term pathway to positive free cash flow is sufficient to get any group of interested investors to bludgeon each other for a chance to get a piece of the action. But, the divergence in quality that I’m speaking of stems from a difference in vision among founders, with some steering their companies with clear, long term, eagle-like vision, with the right product and technology at the right time, and others, doing so with what I contend are blind spots of timing, competitive landscape, market demand, and regulatory obstacles, any of which might make their company’s long term success a challenge.
In the camp of eagle vision-like founders, the products and technologies being put forth include on-demand payroll, earned wage access, private, permission-based blockchain applications, non-generic BaaS platforms focused on embedded finance, biometric authorization protocols, enhanced cryptographic tokenization, spend management engines, multi-currency, cross-border remittances, conversational, SMS-based commerce, open banking and data aggregation architectures, treasury management software, supply chain financing, and real data analytics/ inferential A.I. The application of these technologies to financial services and commerce substantiate the clarity of vision of the founders who continue to test, develop, and advance them, and who also believe, correctly so, that these products and technologies are foundationally better than today’s, have unquestionable utility, and will ultimately sate demand from consumers, SMBs, and enterprise businesses alike.
Of those founders with blind spots, the products and technologies being put forth include cryptocurrency trading applications, crypto to fiat payment mechanisms, siloed accounts receivable/accounts payable software, broad-based BaaS platforms, buy now pay later schema, digital banking apps not directly marketed to the unbanked and underbanked, and any platform leveraging Bitcoin as a long term payments solution.
To be clear, I’m not suggesting that these blind spots are commercially lethal. But I am proposing that without further research, rethinking product and technology utility, a reassessment of distribution strategies, end-markets, and/ or severity of regulatory hurdles, the long term viability of these founder-led businesses may be at risk.
Eagles have the ability to see what humans can see at four times the distance, with a 340 degree field of vision – this compared to our paltry 180 degree field view (a substantial blind spot). So, for the founders on the front lines of financial technology, take a cue from our aquiline friends and emulate them – see further (into the future), and be aware of our innate visual limitations.