The fintech sector will no longer be a monolith
For too long, all of fintech has been lumped into one box. The current fintech categories that exist will further differentiate and become tech sectors in and of themselves. Insurtech, lending tech, neobanks and other categories are all different and have good business models that do well. I expect they will all continue developing niche technologies that cater to their specific audiences, no longer being bound by the larger industry standards, and will drive new levels of innovation in their respective spaces. Specifically, fintech infrastructure will emerge as its own leading category within fintech more broadly.
The question isn’t whether there will be a recession next year, but rather how bad and who will it affect
For the startups who raised at massive valuations in 2021, there will come a point next summer when they won’t be able to raise in a recessive environment. That means 2023 will likely be worse than 2022 in terms of layoffs, high interest rates and an overall decline in startup funding. I expect Seed and Series A rounds to happen, but big rounds at later stages will be less likely.
It’s just not clear how bad 2023 will be. We’ve had a year of market downturns and stock markets generally bottom out 18 months before recessions end. So, there’s a scenario where 2023 could actually be fairly good in the stock market even if the recession isn’t great. I’m pessimistic about next year, but super bullish on 2024 as the new crop of startups mature and trends like AI develop.
For founders and investors, the wheat will separate from the chaff
The founders I talk to now seem more committed and determined about what they’re building than before. The founders I’m seeing now are true believers. Last year there was no downside to being an entrepreneur – you could quit your job, raise money and have fun. Those days are over. It also means that it’s a great time to be an investor, if you’re serious about it. Investors have the opportunity to fund the rising stars and be critical with their investments, only investing in the founders they believe can get through economic uncertainty and lead the next wave of innovation.
At least one hot product-led growth company will be acquired next year
There were a lot of strong unicorn companies who never would’ve considered an acquisition this year. But the faltering economy and increased difficulty of fundraising or going public will force the process of natural selection among startups – where only the fittest survive and others are forced to fold.
We saw this with Figma but I think that’s just the start, I think there will be a number of hot product-led growth companies like Notion, Airtable, Loom, who wouldn’t have considered selling this year who might in 2023.