Frankfurt Layoffs, broken rounds of financing, change of strategy: numerous fintechs are fighting for their existence in the current market environment with the Ukraine war, inflation and interest rate turnaround. “It’s very, very tough for many fintechs,” said Jessica Holzbach, co-founder and CEO of fintech Pile, on Thursday at the Handelsblatt Bank Summit. Companies should now focus more on profitability and show more quickly where their own development should go.
Investor Ramin Niroumand from Embedded Capital expects that there will be other fintechs that cannot assert themselves in this environment. This applies above all to companies that have invested a lot of money, for example in marketing to acquire new customers.
A prominent example is the Berlin crypto platform Nuri. The fintech had to file for bankruptcy in early July after Nuri failed to receive fresh capital from investors. Two German neobanks, Kontist and Penta, were bought up by foreign competitors.
And this despite the fact that there was still record financing last year: investors invested 4.6 billion euros in fintechs in Germany in a total of 183 financing rounds. This year, investors are clearly more cautious. In the first half of this year, not only did the amount of venture capital invested fall, but so did the number of deals closed. In the entire first half of the year, the number of financing rounds by German fintechs was 54.
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Fintechs have to adapt to the new reality in these months. “It was very, very unhealthy,” Niroumand said. In the past year, companies have shifted their focus away from their own products. In return, the companies only thought about the next round of financing.
Especially after the past record year, this change is obviously not that easy. Many find it difficult to reorient themselves and are not willing to accept a down-round, for example. Downrounds are rounds of funding where the valuation goes down. According to Holzbach, the venture capital raised should only be used as start-up financing anyway – and “not as an end in itself”.
More on the Handelsblatt Bank Summit:
The Berlin Solaris has changed its focus. In the future, the company wants to work primarily with large, established companies instead of with smaller fintechs, as has been the case up to now. In crisis situations, people think more about where there are better and more sustainable opportunities for profitability, said Niroumand, who sits on the company’s advisory board.
Niroumand welcomes the fact that the first takeovers have already taken place. Germany needs takeovers for a “healthy start-up ecosystem”. However, he calls for more activity from the German banks. However, one has to ask oneself whether things should continue in Germany in such a way that either only companies that have gone bankrupt are bought, or “whether one doesn’t even have a bit of ambition,” said Niroumand.
Holzbach also criticizes the fact that foreign investors, especially from the USA, are active in larger financing rounds. As a result, companies sell shares to American venture capitalists. If we don’t change that in the long term, “we will lose innovation,” said Holzbach. “We have to strengthen the location and build sustainable companies,” she said.
Despite all the challenges, the experts agree: fintechs will not disappear in Germany. On the contrary: As a young company, you are used to changing quickly and frequently, said Holzbach. Fintechs had already reacted well to the changes during the corona crisis. Even now, the companies need a strategy update. But she is optimistic that they will be able to do this even in this crisis or recession.
Niroumand also affirmed that fintechs would not be founded for six months just because of hype. At the end of the year, it will become clear who the really sustainable companies are that have a good business model, or the companies that were able to collect a lot of money from investors last year.
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