Big venture capital names backing off the cooling payments and fintech space has created opportunity for one growth equity firm that’s investing from a $2.3 billion fund.
FTV Capital Partner Rob Anderson said there are “absolutely” more opportunities for his firm as large VC firms such as Tiger Global Management and SoftBank have written down the value of their investments or pulled back from the sector in recent months.
In 2022, San Francisco-based FTV invested about $975 million with startups, up from about $700 million in 2021. Of its current $2.3 billion fund, FTV declined to say how much it’s planning to deploy this year. Thus far this year, the firm invested $43 million in wealth tech platform Masttro in March.
FTV also participated in a $132 million funding round for ID.me announced Tuesday, although the firm’s stake wasn’t disclosed.
“This market needed to take a little bit of a breather,” Anderson said. Venture funding in payments had been red hot in 2020 and 2021 before the market soured last year. The industry has witnessed some VC firms step back or encounter challenges in the space after taking a “risk-off stance,” he added.
“There’s been a lot of folks – and a lot of smart investors – that have kind of dabbled in and around fintech that are really starting to see how challenging (it is) and how important it is to have very deep domain expertise, understand the market structure,” Anderson said.
FTV’s more prudent investing approach has left the firm with more opportunity as other VCs recede, Anderson said. There’s “more asymmetric upside these days than downside,” he said.
He declined to comment on whether FTV has purchased any stakes from other VC firms on the secondary market. The Information recently reported investing giant Tiger Global, which has backed digital payments firm Stripe, has tried to sell some of its stakes.
Some companies have still been able to raise capital, but they’re not achieving the sky-high valuations in funding rounds that was the case a couple of years ago.
Earned wage access provider DailyPay received $260 million in debt financing in January, and Stripe secured $6.5 billion in March. Stripe’s valuation was cut almost in half to $50 billion during this most recent funding round.
FTV, founded in 1998, has focused on sub-sectors across payments, fintech and vertical software. Anderson led a $62 million investment in fintech infrastructure startup Solid last August, and a $74 million investment in SingleOps, which provides business software for the tree care and landscaping industries, last July.
For its part, FTV has continued to close deals at a steady pace and sees plenty of opportunity this year, Anderson said. The firm remains “methodical” about how and where it invests, looking for companies focused on growth and profitability, he said. “That’s not going to change at all,” he said.
Companies that are tapping into trends around digital transformation, automation and efficiency, in segments such as cross-border e-commerce, business-to-business payments and embedded finance are still in demand, “even if there’s near-term headwinds in buying or end-customer segments and how they perform,” Anderson said.
Given the pace of the Federal Reserve’s interest rate hikes and the effect they have on lender balance sheets, Anderson expects the market will continue to see some variability through the year. And the impact of the COVID-19 pandemic hasn’t completely passed yet either, he said.
With a prepare-for-the-worst mindset, FTV has worked closely with its portfolio companies to navigate a choppy macroeconomic environment, Anderson said. “Executive teams can control costs,” he said. “They can’t always control buying behavior of the ultimate customers they’re selling to and where budgets reside or not.”
Exit activity among payments and fintech companies has also been quieter in the last year. Globally, the 1,671 initial public offerings across industries last year was about half the 3,260 IPOs in 2021, according to S&P Global Market Intelligence.
IPO activity is bound to increase, although potentially not until next year, Anderson said.
Venture capitalists are holding a notable amount of cash on the sidelines, and large companies haven’t been as acquisitive lately, Anderson said.
More exit activity has occurred with private equity firm buyouts, especially on the software side, he added. Last year, B2B payments software company Billtrust was acquired by Swedish investment firm EQT for $1.7 billion.
“At the right valuation levels, there’s going to be more deal activity,” Anderson said.