📶 fintech's new lease on life

How the Fed impacts the venture outlook for many fintech companies, why Index is betting big on NYC, and six trends that will shape our careers

September 30, 2024 • Estimated Reading Time: 6 minutes

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Good morning 👋

~Five years ago, fintech was a venture darling. The last two years it definitely has not.

When the Fed raised rates, it put a lot of fintech business models under pressure. Now that that’s starting to change at a macro level, we expect some changes on the micro level, and we cover it in today’s piece.

Let’s get into it.

P.S. 💰 Are you a full-time investor?

TL;DR:

TOP STORY
Fintech’s comeback 🔙

The Federal Reserve’s half-point rate cut is a lifeline for fintech startups, especially those reliant on loans for cash flow.

Companies like buy-now-pay-later provider, Affirm, which struggled with rising interest rates, can now see opportunities to offer better loan terms.

This unlocks potential growth in the refinancing and mortgage tech space.

And for VCs and founders, this could signal the next wave of fintech innovation - a sector that has gotten hammered by the overall market correction over the past 2-3 years.

Why it matters:

Quick finance 101 lesson.

Lower rates mean cheaper capital for fintech startups—especially those in BNPL, corporate credit cards, and mortgage lending.

Founders can now secure more favorable terms for the debt they rely on, creating room to scale more efficiently.

For VCs, this opens the door for new investment opportunities in a sector that’s been largely ignored in the high interest rate environment.

As the cost of capital drops, loan-based fintechs are positioned to bounce back, driving higher growth rates and better exit opportunities.

What happens next:

We’re all at the mercy of Jerome Powell, so it’s hard to know. But if we assume that rates will continue to drop, here are a few more things that we think could happen:

  • More refinancing companies pop up: Consumers want to refinance their old rates

  • BNPL and credit card companies expand: Lower borrowing costs = more extended credit

  • More VC dollars shift back to fintech: We’re still bullish on next-gen underwriting, AI-driven credit and risk models, and DeFi

  • Mortgage tech becomes hot again: Expect more new companies building streamlined home refinancing, data-driven credit assessments, and other AI-driven applications to simplify the process of getting and maintaining a mortgage.

But again, we’re at the mercy of the Fed, so we’ll have to wait and see.

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TWEET

HEADLINES
What else we’re reading

  • Why Index Ventures is bulking up its investment team in NYC (TechCrunch)

  • Washington is a bigger startup hub than Seattle or Austin (Pitchbook)

  • How autonomous vehicles are transforming the supply chain (Pitchbook)

  • Robinhood, Revolut Reportedly Exploring Launching Stablecoins (The Information)

  • Arch Venture Partners raises over $3b for Fund XIII (Venture Capital Journal)

COMMUNITY
What do investors from a16z, Bessemer, Founders Fund, and Insight have in common?

They’ve all joined this private investor community.

Here what all they get with their membership …

👥 Member directory: Venture is a networking game after all, right? Join 2,250+ other investors already inside and get access to the entire member directory once accepted

🔎 VC resource library: 400+ VC-specific templates, prompts, and other resources to become a better investor

📋 Dealflow-as-a-service: 1,000+ investment memos (and counting) so you never run out of companies to look at

🗣 Investor-only Slack: Where venture, growth, and private equity can answer hard-to-find questions, gather signal, and cut through the noise

POLL

Which trend is most interesting to invest in?

Pulling the idea from this article ➡️ https://junglegym.substack.com/p/6-trends-that-will-shape-our-careers

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RESULTS

Here are the results from our poll question in Friday’s piece:

Will you be investing in any YC companies from this batch (S24)?

 

🟩🟩🟩🟩🟩🟩 Yes - absolutely ✅ (20)

🟨🟨🟨⬜️⬜️⬜️ No - not a chance ❌ (10)

🟨🟨🟨🟨⬜️⬜️ Not an investor - show results 👀 (13)

43 Votes

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