In today’s episode Josh Benadiva and Kailee Costello sit down with F-prime Capital’s Managing Partner David Jegen and Senior Associate Abdul Abdirahman to discuss their recently released 2023 State of Fintech Report.
“Public investors are looking at FinTech stocks differently than private investors. And public investors have reappraised those stocks in many ways. Specifically, they’re putting them into one of two categories. In one category, we have truly disruptive fintech companies, which are going to change the very structure of financial services. And in the second category, we have really high growth, perhaps wonderful companies, with a new digital experience and a great product, but companies that will eventually look and feel more like traditional financial services.
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F-Prime Capital is an independent venture capital group that grew from Fidelity Investments. They have been backing entrepreneurs building ground-breaking companies for over fifty years. F-Prime has more than $3B under management and has invested in companies from Alibaba and Prosper to Toast and Flywire.
David Jegen currently serves as the Managing Partner of F-Prime and has been leading investments there since 2006. Abdul Abdirahman is a Senior Associate at F-Prime and is a co-author of the 2023 State of Fintech report.
In this week’s episode, we are excited to dive deep into some topics on many of our minds. We will hear from the foremost experts, David and Abdul, on the current state of fintech in 2023…as well as hear their thoughts on specific verticals and trends in fintech.
- How F-Prime’s Fintech Index Got Started
“In 2021, we saw a high volume of FinTech companies going public. And we had an opportunity to really think about how we could put together an index that really captures what how these disruptors are doing in public markets. Initially, we put together the index with about 50 companies. And it’s grown over time, some have been acquired by private equity funds, and some have been acquired by other traditional financial institutions or other larger startups.
We put it together so that others in the ecosystem, whether they’re entrepreneurs, who needed to just see how different verticals in FinTech were doing, or investors and other stakeholders in the financial services ecosystem, who wanted a single place to go gather a lot of data on things like multiples and performance.
- The Fundamental Difference Between 2001 and Now
“The main difference is, if you compare this to 2001, that there are a lot of very profitable business models. These are not eyeball businesses, by and large, in the FinTech world. And I think the main problem was that because there was a lot of inexpensive money over the last five to seven years, that allowed a lot of ‘me too’ businesses to be built. This means we have a lot of the same businesses chasing after the same customer base. That ultimately creates a problem in the market, when capital becomes expensive, again, as it has now.
There are businesses, like Toast, Flywire, bill.com and Adyen, that are really fundamentally attractive businesses. I’d even say some of the challenger businesses like the neobanks, such as MoneyLion or Chime — they have reasonable unit economics. The biggest problem for them is that they’re very fragile in a rising rate market and in a slowing macroeconomic environment. And since they make very little money per user, they really need scale to become overall economic. And when they can no longer grow, they don’t have the capital to grow really quickly. They also don’t produce a lot of cash, and that fragility is showing in the market today.
- Embedded Fintech Enabling High Revenue Vertical SaaS
“The key to building great businesses is finding the platform business within a certain vertical. And what is exciting about what we’re all doing these days, with embedded Fintech, is that those platform businesses are just so much more valuable because they can incorporate banking, payments, and lending into what they’re doing.
I break it into two parts. It’s the application layer which is probably the most exciting. These are the beneficiaries of Banking as a Service providers like Unit or Bond. These applications can now embed these financial services into their products.
So Green Light’s a good example. Green Light is a banking for teens provider, but it’s essentially a software application for parents to manage their teams money and allowances and drawers. They’ve embedded a banking product, and a bank account into that experience. How will the banking as a service layer shape up? I do not think it’s a winner take all — I think it’s a winner take a lot.
- Opportunities For Growth in Fintech
- David’s Advice to Founders
- and a whole lot more!
To check out F-Prime’s State of Fintech Report, see https://bit.ly/fprimefintechreport
F-Prime is also hosting a review of the report on Thursday, March 9th, at 12pm ET. Click here to sign up!
Check out the Episode on the platform of your choice here →
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About David
David Jegen is the Managing Partner at F-Prime Capital and has been an investor at the fund since 2006. He has served on the boards of Flywire, Notabene, and Quovo.
About Abdul
Abdul Abdirahman is a Senior Associate at F-Prime Capital. He is investing in early-stage (seed-Series B) businesses and is a co-author of the State of Fintech report. He has his MBA from Stanford Business School.
About F-Prime
F-Prime grew from one of America’s great entrepreneurial success stories. Fidelity Investments was founded in 1946 and grew from a single mutual fund into one of the largest asset management firms in the world, with over $2 trillion under management. For the last fifty years, our independent venture capital group has had the privilege of backing other great entrepreneurs as they built ground-breaking companies, including Atari, Ironwood Pharmaceuticals and MCI.
About the Authors
Joshua Benadiva and Kailee Costello are first-year MBA Candidates at The Wharton School, where they are part of the Wharton FinTech Podcast team. Josh has a passion for building FinTech products, solving critical financial problems, and geeking out on weird corners of niche financial software. Kailee is most passionate about how FinTech is breaking down barriers to make financial products and services more accessible — particularly in the personal finance space.
Don’t hesitate to reach out with questions, comments, feedback, and opportunities for Josh at benadiva@wharton.upenn.edu and Kailee at Kaileec@wharton.upenn.edu.
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