VCs in Fintech Pivoting Toward Insurance & RegTech in 2017

(By Caitlin Haskins – Sr. Account Manager – 10Fold Enterprise Practice)

While the fintech venture market remained strong in 2016, Business Insider tracked a drop in the overall deal size that was characteristic of the wider tech investment market. At Empire Startups’ SF Fintech Meetup, partners at major fintech VC firms weighed in on what they expect from 2017. Panelists included:

NO FOLD ICON 15x15 Simon Yoo, founder and managing partner at Green Visor Capital

NO FOLD ICON 15x15 Shelly Kapoor Collins, partner at Propeller Venture Capital

NO FOLD ICON 15x15 Mike Sigal, fintech partner at 500 Startups

NO FOLD ICON 15x15 Alex Pack, head of capital, Deal Team at Angel List

Clear Winners in Payments and Lending
The panelists agreed that the fintech market is getting oversaturated and over-funded. This means that the pressure is on to seek original ideas that leapfrog entire processes in financial services as opposed to just digitizing existing services. They pointed to payments and lending as two areas where the market has defined clear winners, but as credit becomes more expensive, this could shake loose new opportunities for entrepreneurs.

Hot for 2017: Insurance & RegTech
With major political shifts in store for 2017, entrepreneurs and VCs alike are not sure what a new U.S. administration might mean for their businesses. But confidence in insurance and regulatory technology (RegTech) is high. Kapoor Collins encouraged entrepreneurs to think about regulations on two levels. At a basic level, founders should factor in regulatory policies and changes into their business plans. They should not expect to skate below the radar for long before the SEC catches up. On the other hand, there’s a real opportunity for business models around regulatory topics.

Sigal pointed out that while the financial services industry is vertically integrated today, the health insurance industry is not. Founders addressing the insurance market have an opportunity to connect dots and leapfrog legacy approaches to acquiring customers, delivering insurance and managing claims.

Revolution in Financial Services Automation
Yoo pointed out that while fintech has been around for about a decade, there is still not a lot of public scrutiny around the impact it will have on the financial services workforce. An Oxford University study estimates that 47 percent of U.S. jobs are at risk of being replaced by automation over the next two decades.  He referenced one example in Goldman Sachs, who has cut their staff of “market makers” from 600 to zero over a six-year span.

What About the Blockchain and Cryptocurrencies?
The fintech headlines that garner the most media attention are the least interesting to the VCs. Sigal called for an applied use of the blockchain beyond payments as an original angle to the ideas he’s been seeing in applications for the next 500 Startups cohort. Pack pointed out that platforms based on Ethereum must be open to flexibility as financial institutions and other prospects may shift requirements.

A Growing Global Market
As a final takeaway, the VCs are looking beyond the Silicon Valley’s bubble for unique ideas in the fintech market. Kapoor Collins, who focuses on companies founded by women, is working with several startups in Europe. Many unique payments and insurance startups referenced during the evening were based in Africa. Sigal thinks that the Silicon Valley is the best training ground for businesses that need to scale quickly, but that training can happen here before building out the business in another geo that’s less competitive for engineering and development talent.

The PR Takeaway
The venture capital community remains bullish on fintech, but the purse strings are getting tighter as new ideas are harder to come by. The media, however, are still on yesterday’s tech – the price of bitcoin and potential (though unrealized) for the blockchain’s universal ledger. PR pros and startups that are focusing on the emerging areas of fintech must educate and engage reporters to show them the impact these new areas will have on a financial services market worth trillions.