How we’re thinking about fintech now

Here’s a letter we sent out in mid-March, and it still holds true today; it was forwarded around, so we thought it might be useful to share it here.

First, we’re glad to report that our team and all of our portfolio teams are safe and working remotely. We have been getting a firehose of information from our founders, investors and partners over the last couple of weeks, and we wanted to share our perspective on what the latest developments mean for the fintech sector in particular.

Obviously, the economy, financial markets, credit conditions, and household financial health are deteriorating by the day. This pandemic deals a devastating blow to millions of families who were already struggling to make ends meet and to countless small businesses and communities across the country. Moreover, large firms appear, in general, to be poorly prepared for remote work contingencies at this scale. In comparison, tech-driven companies with closely aligned teams comfortable with remote working are much better positioned to weather this storm.

In talking with founders, other investors, and LPs, we are starting to see an emerging consensus around funding: there is a rapid flight to quality in the seed and Series-A stage. Good deals are still getting done, but they will take longer. Most funds are preparing to support existing portfolio companies that have cash needs, and that means pulling back from new, outside deals. The good news is that there is a lot of dry powder in the system, and those dollars are earmarked for early-stage investments. The cash is there, but it will come slower than you’d like.

If you’re a founder and you can put off raising, that’s probably a good idea. If you can’t, here’s our high-level advice:

• Save cash. This is going to be hard. Every penny will count.
• To the extent that you can terminate leases or reduce office space, do that. It’s very unlikely that things are going to “bounce back” in six weeks.
• Focus your energies on those investors you’ve already met in person, even if a while ago. Despite everyone being “Open for Business,” it’s still very hard to raise without an in-person meeting. So go to those investors that have met you and know you’re a real person. If they’re a hard pass, ask for a referral. This is not the environment for cold outreach.
• Be prepared with numbers. Prepare financial models that envision no growth and negative growth scenarios over the next 12–18 months (don’t put this in your marketing deck, obviously, but be prepared to answer the question). Investors will ask you what happens to your business in some of the darker scenarios, and these days, they’re not kidding.
• Be kind to yourself and those around you. This is a difficult time to be a founder, but it’s also an incredibly difficult time for everyone else. Try to keep your head up and be supportive of those around you. You may witness a Zoom meltdown or two. One of them might be from a toddler. One of them might be you.

All that said, being a startup — provided you have sufficient runway — is tremendously valuable in a situation like this. Smaller teams are more nimble, products easier to tailor to the current conditions, and remote work is comparatively easy to implement. Financial concerns will be top-of-mind in the coming months, and these are the times for great leaders and innovators to step up. Some of the best companies in the world are built in times of crisis, especially in sectors like finance that have immediate real-world relevance.

Ultimately, we feel incredibly privileged to have the jobs that we have during these times and to work daily with so many extraordinary entrepreneurs and investors. Given that many, many people are not nearly as fortunate, we are including a link below to donate to SaverLife, a nonprofit fintech that is providing direct cash disbursements to those in need. We know that everyone is giving back in their own way, but if you’re looking for a way to provide support, Leigh Phillips and the team at SaverLife are absolutely deserving of your dollars. Here’s where you can donate.

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