Grand Ventures’ Fintech Focus

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Overview

Fintech has been by far the most funded Venture Capital sector this past year. At $63B in US funding in 2021 across 1,827 deals, this tremendous momentum is expected to only accelerate to surpass the 171% YoY growth this past year. This immense growth is due to a number of different factors:

  1. Consumer behavior. These past two years have seen an acceleration in the adoption of cashless transactions and digital financial services due to consumer concerns about COVID-19. Small and medium-sized businesses (SMBs) have also faced unprecedented challenges from the pandemic, many of which have been forced into closure or to stretch their already thin cash reserves. Additionally, traditionally underbanked customers or those who have been dissatisfied by traditional banking experiences are becoming increasingly open to adopting neobank solutions.
  2. Abundant need for Fintech. The reality is, Fintech touches every aspect of a consumer, enterprise, or SMB. Anywhere from legal incorporation to banking to payroll, everything is being modernized and digitized. Small and medium businesses especially have needs across the fintech ecosystem that are often underserved by more established financial institutions.
  3. Rise of Independents. With the onset of the gig economy and increasing opportunities for creators and individuals to have more ownership over their working lives there is an increasing need to help these non-traditional independent contractors manage their businesses.
  4. Industry timing. Challenger banks have shown proven disruption of the status quo and there have been many successful acquisitions and IPOs of notable Fintechs. Acquisitions range from American Express‘ acquisition of SMB lender Kabbage in August 2020 or Bill.com’s acquisition of SMB expense management platform Divvy. Investors are also taking note of the success of their Fintech portfolio companies and recycling capital within the industry. Fintech companies provide the ultimate combination of stable, recurring growth and minimal downside. The proliferation of fintech companies has led to the next great opportunities.

Where Grand Ventures is Investing in Fintech

Fintech’s significant growth has come with some challenges. The plethora of funding has caused significant competition throughout all sub-sectors of Fintech. As a result, Grand Ventures takes a targeted approach to identifying where opportunities lie based on the evolution of sectors. Specifically, we’re focusing on three key areas: Digital Finance for SMB and Independent Workers, Modernizing the Fintech Stack, and Emerging Technologies.

Digital Finance for SMB and Independent Workers

CB Insights: https://app.cbinsights.com/research/fintech-small-business-market-map/

Fintech solutions that target SMBs, independent workers, and creators have been rapidly gaining traction as a new wave of well-funded companies are reinventing the toolkit for modern businesses. While there’s a lot of companies providing financial software, there’s clearly still a need for SMB Fintech solutions; investments must focus on niche segments where problems still persist. Grand Ventures chooses to focus on the persistent SMB need for cash flow management and financing solutions. Unlike larger, more established firms, SMB often have small cash reserves and depend on external capital to sustain ongoing growth and expense management. The median US-based SMB has only 27 days of cash reserves on hand, meaning that without an inflow of cash, it can only pay its expenses for less than a month. As a result we are excited to invest in the following spaces:

  1. SMB Financing. SMBs need financing, but because banks and the SMB administration are slow to process loan applications and disburse funds, these companies are looking for working capital, peer-to-peer lending, and credit solutions. Onecause, an Indiana based Series A Fintech is targeting a similar issue for non-profits through an online fundraising platform.
  2. Expense management. As rapid digitization has led to the proliferation of account information and spend data, SMB have an increasing need for data visibility and insight generation to manage their current and future day to day cash flow. Cash management platforms are enabling SMBs to automate banking, accounts payable, and card management processes.
  3. Creator Economy Solutions. Due to their multiple income streams collected from a variety of sources, these creators have unique needs to manage their businesses. They require solutions that enable them to manage their business in the background while they can focus on creating. Texas based Creative Juice helps creators get both financial backing and also an estimate of their projected revenues so that they can make informed decisions about how to grow their businesses.

Modernizing the FinTech Stack

US banks are increasingly relying on Fintech to future-proof their organizations through innovative technologies that improve traditional financial services. Strategic bets are being placed on Fintech companies across Capital markets, Wealth & Asset Management, Embedded Finance, Creator Economy Solutions, and Open banking / APIs. Winners in these categories will define new categories and own the platform instead of the feature so other companies must plug into their stack.

https://www.cbinsights.com/reports/CB-Insights_Top-Fintech-Reports-2021.pdf
  1. Capital Markets. Including B2B companies that are either improving or replacing securities issuance, trading, clearance, and operations. Notable companies within our emerging markets include Eventus, a leading global provider of multi-asset class trade surveillance and market risk solutions from Austin, Texas which recently raised a $30 million Series B funding round.
  2. Wealth & Asset Management. Comprising both B2C and B2B tools and platforms for personal financial management, digital advice, wealth management, and analytics. A notable B2C example located in Chicago, Illinois is M1, a personal finance platform for digital investing, lending, and banking. Access to new asset classes are also gaining traction for consumers who want to further diversify their portfolios, examples include AcreTrader, an Arkansas based online investment platform designed to provide access, liquidity, and transparency in the asset class of land.
  3. Embedded Finance. More brands are integrating financial services into their platforms as consumers become more comfortable borrowing from businesses that are not financial services providers. For example, Moment Technologies, an Atlanta based Series A company has developed an embedded financial service platform that streamlines digital point-of-need lending and payments.
  4. Open Banking. Open banking solutions have been driven by two distinct forces: (1) new regulations that require banks to open their customer data to third-party applications, and (2) traditional financial institutions desire to drive digital transformation. Both forces have enabled Fintech challengers to offer innovative solutions to adapt to ever-changing regulations and support the banking industries desire to accelerate their digital transformation. GigWage, a Texas based company, tackles this sector through a more targeted solution. They operate an API and web-based payments platform designed to pay, manage and support contractors.

Emerging Technologies

Emerging technologies can be defined as anything that accelerates growth and creates change in the way people and businesses operate. Breakthrough technologies are continually appearing, challenging even the most innovative organizations to keep up. At the moment, some exciting emerging technologies include Blockchain, Cryptocurrencies, NFTs, Web 3, and DeFi. At Grand Ventures, we believe in focusing on emerging technology solutions that have shown early signs of adoption and success and are building the technology foundation of the future.

  1. AI to Enable Innovation. While some AI solutions have reached maturity, these advancements have positioned AI technology to directly influence both the creation and optimization of a wide range of products and services. Areas in which AI will really thrive are: trend identification and pattern matching, idea generation and testing practical feasibility of ideas, and prototyping ideas.
  2. Nonfungible Tokens (NFT). A blockchain-based digital asset that links to real world digital assets like digital art or music, or physical assets that are tokenized such as real estate. NFT startups raised a record-breaking $1.3B in Q3’21, up 329% QoQ and a staggering 7919% from the same time last year. Early-stage deals make up 91% of all NFT deals. NFTs are creating new business models for content creators to monetize their digital and physical assets. While there’s still a lot to be proven in this space, opportunities lie across a number of areas including:
  • Cybersecurity
  • Building the ecosystem infrastructure
  • Building direct connections between different blockchain networks
  • Creating new business cases with heavy adoption.

3. Decentralized Finance (DeFi). DeFi leverages blockchain technology to enable peer-to-peer exchanges of digital financial assets such as trading, lending, and issuing without the need of a central intermediary. As a result, DeFi can create alternative capital and financing mechanisms for consumers and businesses. It also has the ability to lower market costs, enable complete investor control over their assets, market transparency, and the creation of new financial products. However, this market also poses significant risks as it requires a high level of trust in smart contracts, is not subject to regulatory oversight, and can be heavily impacted by well-known personalities.

How Grand Ventures Can Help

Grand Ventures supports the success of its portfolio companies by providing unwavering, hands-on support, as well as access to an unmatched network. Our team has complementary skills and extended operational and investing experience throughout the Fintech industry. With the launch of GV Fund II we’re excited to make $1–2 Million investments in Seed to Series A companies. Are you a startup or an investor or incubator interested in partnering with us? Please do not hesitate to reach out to us at [email protected]

*A special thank you to our Grand Ventures’ intern, Madeline Clark, who wrote and researched this piece.