Fintech funding has hit a four-year low, but venture capitalists believe that it will slowly return to a pre-pandemic normal, Carey Ransom, managing director of venture capital firm BankTech Ventures, told Bank Automation News. 

“Things got very frothy in 2021 and 2022 due to the liquidity in the market,” Ransom said. “It was a zero-rate environment, which also caused people to pump up the valuations.”

With restricted liquidity, the market is heading back to the baseline of normal valuations and funding processes, he said. 

Global fintech funding hit $7.3 billion in the first quarter, down 54% year over year, according to an April 18 report from think tank CB Insights. 

“Despite the continued decline in funding, deals in fintech increased by 15%,” a spokesperson from CB Insights previously told BAN. “The implication being that investors are interested in fintech, they’re just making smaller deals.” 

BankTech Ventures invests in fintechs that serve small and medium-sized financial institutions, usually investing $1 million to $5 million in a startup, Ransom said, adding that many of those FIs are investors in the fund, which gives them good insight into the needs of small FIs. 

“We would typically invest in a company that’s at least at a seed stage, meaning they have a product, they probably have at least a customer or partner,” Ransom said. BankTech also introduces companies in which it invests to the banks in its ecosystem to help them grow, Ransom said. 

Investment strategy 

As the macro economy has drastically changed, so has the investment strategy of BankTech Ventures. 

A few years back, banks were flush with deposits so BankTech Ventures looked at companies that could help retain deposits because it knew eventually there would be a fight for these deposits, Ransom said. 

“In this environment, we’re probably not going to do much in an area that is adding to consumer credit,” he said. “We might be looking at data solutions that help better price or better predict consumer behavior.” 

In June, BankTech Ventures invested in: 

• Debt recovery fintech Equabil; 
• Automated compliance and cloud services provider Filejet; and 
• Cash flow analysis service provider Monit. 

BankTech Ventures is also exploring investing opportunities in AI, Ransom said. 

“It’s an area that we’re spending a lot of time evaluating,” he said. “But also spending a lot of time talking to our banks, so that they are more comfortable with making decisions and implementing solutions that have AI in them.” 

The firm is looking to make deals with companies that are transparent about their AI processes so banks can provide information to regulators and shareholders about how the tech works, Ransom said. 

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