Funding of FinTechs and VCs In

the Current Macro Environment

Professor Ken Singleton

Stanford Graduate School of Business
Macroeconomic Policies and Financial Markets
Inflation Matters: The past 20 years Long-bond yields trended downward
has been exceptional. for decades.
Equity and bond risk premiums
diverged starting around 2000.

Source: Shroaders, ”What drives the stock-bond correlation?

© Copyright Kenneth J. Singleton 2

VC Funding of FinTechs Fell Off a Cliff
US FinTech Funding Global FinTech Funding
Down 38% QoQ

Top 10 investors funded 27% fewer companies in Q2’22

© Copyright Kenneth J. Singleton 3

Funding is an Equilibrium Phenomenon

Funding depends on the Risk Appetites of VC and their LPs, which

depend in part on the available exist strategies.

Innovations by FinTechs are Democratizing funding markets.

Institutional LPs are expanding exit options for LPs, and

investment options for retail investors.

© Copyright Kenneth J. Singleton 4

Primary Exit Routes Have Shut Down For VCs
Annual U.S. IPO Activity Global FinTech M&A Deal Count
$350,000 1200
Deals with Announced $ Amounts Deals with Undisclosed $ Amounts
1,073
$300,000 1489
1000

$250,000
800

$200,000 986 969

937 897
895 888 859
600
555 1169
$150,000 707 682
642
598 570
400
$100,000 739 697 824 771
317 726 714 672
274 523
267 242 458 440 563
198 229 200 463
$50,000 179
189 187 134
71 92 320
184 184 158 198 198 162 183 187 162 198 119
$0 0 107
2009 2010 2011 2012 2013 2014 2015 20`6 2017 2018 2019 2020 2021 2022YTD 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H12022

Gross Proceeds (Mil. $) Number of Transactions

© Copyright Kenneth J. Singleton Source: FactSet 5

Reducing Exposures to FinTechs?
LP Portfolio Secondary Transactions Secondary Market Prices Dropped
by Seller Type Substantially
2% Buyout All Venture Real Estate
Pension / SWF 5% 13% 99%
100%
14% 97% 97%
Financial Institution 13% 95%
95% 93% 93%
92% 92%
Fund-of-Funds 14% 91%
90%
89% 93%
90% 88%
24% 86% 86%
Family Office 89%
85% 88%
88%
Endowments & 83% 83% 83%
16% 80% 76%
Foundations
79%
65% 75% 78% 77% 77%
75%
70%
34% 71%
65%
2016 2017 2018 2019 2020 2021 1H 2022
Volume Count LP Portfolio pricing (% of NAV)

© Copyright Kenneth J. Singleton 6

Funding is an Equilibrium Phenomenon

Funding depends on the Risk Appetites of VC and their LPs, which

depend in part on the available exist strategies.

Innovations by FinTechs are Democratizing funding markets.

Institutional LPs are expanding exit options for LPs, and

investment options for retail investors.

What are the implications of these developments for the funding

of early-stage FinTechs?

© Copyright Kenneth J. Singleton 7

Rapid Change in the Value of FinTechs and the
Ease of Raising Funds

• With forward multiples falling and

exit strategies limited, we’re seeing
shrinking late-stage valuations and
round sizes.
• VCs are shifting their focus to early-
stage companies, though on a
selective basis.

Especially early-stage companies are slashing expenses.

© Copyright Kenneth J. Singleton Source: Data from CapIQ; Brex, the Economist 8
Bridge Rounds are Much More Common
Bridge rounds are much more common.
● CEOs focusing on growing into their valuation.
● Growth investors focused on shoring up existing
portfolio companies.

Carta Reported target size of

Firm
structured equity fund
Lots of structured fundraises ("up-rounds in name only")
● Many mid- and late-stage startup deals in 2022 have Coatue $2bn
added liquidation preference (estimates as high as 2/3
with 2 – 3x liquidation preference). Viking $1bn

● Coatue, Viking, and others are raising "structured Insight $1.5bn

equity funds."

© Copyright Kenneth J. Singleton 9

Series A metrics
Consumer and SMB-facing fintech SaaS Enterprise fintech

Acceptable Good Excellent Acceptable Good Excellent

ARR $1.5-2mm $2-4mm > $4mm ARR $1-2mm $2-2.5mm > $2.5mm

MoM revenue YoY revenue

10% 20% > 20% 2-3x 3-4x > 4x
growth growth
Engagement Monthly gross
30% 40% 50% 2-3% 1-2% < 1%
(DAU/MAU) churn

LTV / CAC 1-2x 2-3x > 3x LTV / CAC 1-2x 2-4x 4-6x

The above metrics are general benchmarks. Actual metrics for Series A companies vary widely, from pre-
revenue to $10mm+ ARR. And for an enterprise seed-stage FinTech, it will be too early to have enough data
to calculate LTV / CAC; the guidance above is important for a company to understand what will be expected
post-series A.

© Copyright Kenneth J. Singleton 10

Thank you!