A "zombie" invasion will hit fintech and venture capital in 2025
Many of the major fintech unicorns are secretive about their financials. Few have had successful funding rounds in recent years, and far fewer have gone public. The question is, which are safe to join? The answer comes from VC and fintech veteran Jack Selby, and it's not a good one.
Selby, an MD at Peter Thiel's Thiel Capital was one of the first ten employees at PayPal, so has been on both sides of the fintech coin. He says that, there are "two categories of zombies" coming: unprofitable fintechs and the VCs that funded them. Funds born after the 2008 crisis would hand founders a "blank paper," tell them to "write in the valuation and however much money you want, then I’ll pat you on the back and see you in a year."
With interest rates changing, however, profitability matters. Selby says that in his fund, and others from the likes of Andreeson Horowitz, portfolio companies have around two years of capital left. When that capital runs out, Selby says funds are in line for the least realized gains in the history of the industry.
For fintech unicorns, Selby lumps them into three categories. Some bite the bullet and drop their valuations, others have "shotgun weddings" as investors pressure them into M&A deals. The "vast majority" however, Selby expects to "go bust."
For VC firms, he says that there were around 11,000 at the peak of startup funding, driven by an influx of "tourist capital." At the trough of this cycle, he expects it to be closer to 2,500.
Which startups are getting funding and which VCs are surviving? For the former, Selby says that there's "zero tolerance" for so-called "science experiments" that were once treated like a "zero coupon bond." Now, it's all about "unit economics, cash flow and the path to profit." As for VCs, the funds least affected by the downturn are early stage investors, as "there's only so much money you can put into a series A company."
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