BNPL in 2022: 4 fintech investors discuss regulation, trends and how to stand out

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By Walter Thompson and Ram Iyer

Tuesday, May 10, 2022

Welcome to TechCrunch+ Tuesday

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Consumers in every country are getting squeezed on all sides. Globally, sluggish wage growth and rising inflation has encouraged shoppers to defer payments on everything from groceries to durable goods.

Affirm, Afterpay and Klarna own 75% of the sector in the U.S., which leaves little room for startups hoping to join the fray. Founders who target emerging markets like Latin America and India may have a slightly easier time, but only if their products and services are clearly differentiated.

To learn more about the state of the industry, Karan Bhasin interviewed four fintech investors:

  • Frances Schwiep, partner, Two Sigma Ventures
  • Melissa Guzy, co-founder and managing partner, Arbor Ventures
  • Jonathan Whittle, co-founder and partner, Quona Capital
  • Jason Brown, partner, Victory Park Capital

In addition to sharing direct advice for fintech founders, they talked about managing fraud and default risk, BNPL’s growing popularity as a point-of-sale option, and what kinds of investment opportunities they’re looking for.

Several predicted that consumers will soon be able to make installment payments on recurring expenses like rent and subscription services, along with healthcare expenses.

“We also see opportunities for new BNPL products for small businesses that are looking to reduce cash flow strains or avoid maxing out credit lines," said Jason Brown, partner at Victory Park Capital.

This is a maturing market, so it won’t be easy for new players to buy into the game, no matter how strong their idea.

According to Melissa Guzy, co-founder and managing partner at Arbor Ventures, “a new entrant will need a significant amount of capital from the start for marketing and winning a position on the checkout page,”

Thanks very much for reading TechCrunch+ this week,

Walter Thompson
Senior Editor, TechCrunch+
@yourprotagonist

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When Cowboy Ventures’ Aileen Lee coined the term “unicorn” in 2013, startups valued at $1 billion were rare creatures: there were just 39 of them at the time.

Nine years later, “it only takes one eager investor at a $1 billion valuation to confer unicorn status on a startup,” write Bessemer partners Mary D’Onofrio and Adam Fisher.

Now that the metaphorical hoofbeats of a herd of unicorns has grown deafening, they suggest a new creature is needed: “Centaurs,” or companies that have reached $100 million in annual recurring revenue.

“At $100 million ARR, the startup is an undeniable success. It is impossible to build a $100 million ARR business without strong product-market fit, a scalable sales and marketing organization, and a critical mass of customer traction that allows the company to plan its next steps well into the future.”

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Round sizes are getting smaller, but investors are raising their expectations. According to Blair Silverberg, CEO and co-founder of Hum Capital, founders need to get a firm handle on LTV (lifetime value) and customer acquisition cost (CAC) before they start sending out pitch decks.

“While founders with an eye on high valuations may hesitate to follow a conservative approach, doing so can be pivotal for building trust with investors,” says Silverberg.

This post identifies several factors that will help calculate LTV/CAC accurately and increasing transparency for potential investors.

“As a former venture capitalist, I always tell founders that the most powerful tool they can employ while fundraising is a data-driven pitch.”

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For mobile app developers, data gathered during the slow period that starts right after Christmas and lasts until mid-January can fine-tune their marketing strategy for the upcoming year.

After the holidays, advertising rates drop and user engagement rates spike, which makes it the best time to “enhance your ad creative strategy, transform hypotheses into proven facts, personalize your product and increase lifetime value,” says Vladyslav Strykun, head of marketing at Ukraininan edtech app Headway.

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The last time the U.S. Federal Reserve hiked the interest rate more than 0.5%, Netscape was the most popular web browser, and Napster was driving the music industry apoplectic.

Today, investors are trying to manage a win in an environment that doesn’t favor short-term, risky bets. To find out how VCs are thinking as investment priorities change, Kyle Wiggers and Alex Wilhelm spoke to Brian Aoaeh, co-founder and general partner at REFASHIOND Ventures, and Dell Technologies Capital's Ryan Wexler.

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