In light of the news recently, it’s easy to feel despondent about the year ahead for new businesses, even in Silicon Valley. As Pitchbook noted in its latest report, “All the factors which drove 2022’s headwinds are still with us going into 2023—like the war in Ukraine, energy crisis, the supply chain squeeze, deglobalization, inflation and, most importantly, the fact that money has become much more expensive.”
But it isn’t all gloom, insists Abhinav Tiwari, a technology executive and investor with over 15 years of experience in enterprise technology and financial services. Formerly Head of Corporate Development at Stripe, Dell and Amazon Web Services, he is a seasoned investor in early-stage startups, and he believes that a calmer, quieter, less competitive tech talent market can be a huge advantage for startups in the financial services space with a truly interesting idea.
Tiwari spoke to Brunswick’s Kirsty Cameron about what to expect in 2023, why he remains bullish about the economic environment for fintech and what the downturn means for VC.
Let’s start with the basics. What do you look for in a founder and in a business?
Founder market fit is what I look for. Can the founder drive material change and is their product aligned with the market? I don’t expect profitability in the early iterations; that’s really challenging when you are trying to disrupt an industry. And I also don’t believe in growth at all costs. But I am looking at efficient growth followed by profitability.
As an investor, I’m in the trenches with our founders, day in, day out. That means I want to enable them, not block them. I’m like an employee they don’t need to pay! I help them with all sorts of key parts of the business, such as investor relations, design and storytelling, at the early stages when there are only two or three people. When they grow to 10 or more, that’s when I help them start thinking about structure and governance.
Do founders and established CEOs share many of the same qualities in your experience?
It’s interesting, I think the best leaders have the qualities required in both. In my experience successful, established CEOs of large corporations maintain a culture of innovation and growth. They think big and deliver results and they imbue that across all aspects of the business.
The leaders of these newer companies aren’t thinking about culture, they aren’t thinking about how you manage 1,000 people, 2,000 people. And they’re not thinking about solving for 10–20% efficiency gains. They’re thinking about a 400–500% industry change, so of course you need to be a bit more of a visionary.
Spending time with founders, I’ve learnt that the most successful ones have often experienced firsthand the fault lines that exist in the industry they want to fix. As an investor, I don’t want to influence or create bureaucracy, I want to help these leaders achieve success and fix that deep and complex problem. The most successful founders are also a magnet for talent. I look for leaders who can build a community around them, it’s a hugely important asset, more than IQ or a CV.
What excites you about financial services? Why do you think the market is ripe for innovation?
I don’t think people realize how big the financial services market is. I often get asked, why not focus on enterprise software? Innovation wise, that is a trillion-dollar replacement cycle. Financial services on the other hand … payments alone are a $250 trillion industry. And there is a huge wide space of things that need to change that haven’t changed in four or five decades. There is so much more innovation to come.
In the last 10 years, we have seen innovation in the form of building new wrappers around things that already exist—so we saw better apps, more seamless experiences, the arrival of Robinhood for example, and improved UX across the board. That was version 1.0. What comes next is what really excites me and that’s why I’m bullish about financial services. It’s no longer about the application layer, we are going deeper, into license and infrastructure. The plumbing behind financial innovation is changing dramatically. There is a clear need for more specialized early-stage funds in the market focused on this vertical, led by investors who really understand the nuances and complexities of financial services 2.0.
We’ve seen lots of disruption in the consumer banking sector in the last decade. What’s next?
Traditional banks have been threatened by digital newcomers, no question. Their legacy stack is the real issue—traditional infrastructure wasn’t built for this new world; it was never meant for high frequency transactions. Building a better application layer has been hugely successful. What digital banks don’t have, though, is access to low cost of capital. Currently most of these newer players can’t build lending products.
So I think we will see some consolidation. The traditional banks have the low cost of capital but lack the innovation, and we will see these two things come together. I think we will see some large-scale acquisitions in the next few years.
I look for leaders who can build a community around them, it’s a hugely important asset, more than IQ or a CV.
What is your view on the current downturn, and how long can we expect it to last?
We are currently experiencing an artificial coma if you will, rather than a true housing-market crisis or credit event—the Fed is increasing interest rates to tackle inflation. In the next six to nine months, we will see businesses running out of capital. We will see asset fire sales getting packaged up. We’ll see an impact on results when it comes to corporate earnings. And the timing for the correction cycle is TBD.
We will either have to wait for a true credit event, or for these fire sales to become real and consolidation to play out. And of course if we look further to consumer commodities, it’s all impacted. But that could change overnight—China has suddenly opened up, the war in Ukraine could end. Trade will catalyze quickly. But yes, the near future is challenging.
There is lots of dry powder in venture and private equity, the most there’s ever been. And many are not deploying it because of the market. We are seeing layoffs across the board at some of the world’s biggest companies. That’s actually not terrible news from a classic economics point of view.
As a capital allocator, that means the talent supply is coming back. When I fund a company, it’s no longer as expensive to, say, hire an engineer as it was in 2021. Building businesses has become more cost efficient. We’re going to see a lot of that in the coming months, acquisition of whole talent pools and less on assets, less on growth.
What are the big differences between the US and other markets when it comes to VC and early stage investment?
Where the US generally and Silicon Valley specifically have been more successful is in their acceptance toward risk, in comparison to other geographies. Europe is not alike—each country is totally different. From my experience, angels have often funded some of the most exciting businesses in the UK because they are more comfortable with risk and are repeat founders. Of course, innovation can still grow where risk appetite is low, but in Europe it’s more slow and profitable. Just look at Adyen in the Netherlands. The onus is on profitability from the start.
In Silicon Valley it’s about growth. Look at Stripe, to take one example. The company has a long tail of products they are investing into that will take a while to evolve into robust offerings. They have been advised to look beyond profitability at early stages, and it helped them innovate faster.
I’ve worked in lots of different places over the course of my career and nowhere else have I seen such a close concentration of capital, risk and talent than in Silicon Valley. It’s that sandbox that makes it unique. That’s why I love being here, you can’t replicate those magic ingredients elsewhere.
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Kirsty Cameron is an Associate and Digital Specialist based in Brunswick’s San Francisco office.