What is Fintech & Why You Should Care

  • There is no one clear answer on how fintech should be defined, even among people who have been deep in the industry. Below is one take
  • Traditional FIs have scale and resources but are structurally limited in their ability to innovate. This = opportunity
  • The next generation of fintech is in the early innings. There is still significant opportunity to drive consumer adoption and innovate on cost and distribution
  • Public and private market investors are excited, and fintech has emerged unequivocally as a standalone category
  • Financial services is the largest industry by market cap (>$10T) and fintechs represent <$1.5T. I am excited for the next decade of fintech as it continues to grow, both as a share of the overall pie but also as an enabler expanding it
  • Despite recent market volatility, fintechs have performed well in the public markets, averaging at 18x EV/NTM. It’s important to note, though, that there is significant variance in multiples across sub-categories
  • Investors continue to be excited about the sector’s potential. Venture capital invested $50B across ~1,300 deals in 2021
  • Companies start with an initial wedge that can seem narrow. As a result, total addressable markets (TAMs) can look small in the early days but the best companies expand their product offerings over time
  • Therefore conviction in the wedge is key — I’ve seen dozens of companies going after the same end vision with wildly different starting points. Building the right initial product for a high need use case earns companies the right to expand their product offering over time
  • It can take a long time to “work” — Building in fintech is hard and companies can take awhile to take off. But when they do it happens *fast*
  • As a result early signals matter more than in other sectors — Trust is key in the early days for hiring, design partners etc. The early customer logos can determine success
  • While some of the specific valuation data has shifted since we put this together, the directional trends are still relevant and the takeaways remain the same.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Medha Agarwal

Medha Agarwal

Currently @RedpointVC. Former founder, ops, and consultant. Proud @HarvardHBS @Harvard @Radlwtcrew @Bainalerts alum. Recovering New Yorker, currently loving SF