It's a fintech frenzy - top venture pros spill why the $11 billion party won't end anytime soon

Anthony Harvey / Stringer

Coinbase and its CEO Brian Armstrong.

• Venture capital firms invested $11 billion in fintech companies in 2018, the highest figure in eight years.
• Venture investors don't expect the fintech frenzy to slow down any time soon, despite stock market volatility and economic uncertainty in the US.

It's never been a hotter time to be a fintech company looking to raise cash.

Venture capital firms poured $11 billion into fintech firms in 2018, the most in eight years, according to a combined report by PwC and CB Insights. Funding surged 38% from a year prior, with big deals including crypto exchange Coinbase's latest $300 million round and payments firm Stripe raising funds at a $20 billion valuation. In total, 627 deals were completed, up from 571 in 2017.

And even with a volatile stock market, a trade war with China, and a US government shutdown, venture investors don't expect a fintech slowdown anytime soon.

"I'm actually bullish that it might even speed up," said Angela Strange, a general partner at Andreessen Horowitz who spearheads fintech investments.

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Why is Strange so bullish? First off, there are plenty somewhat-niche industries ripe for disruption, such as the loan-servicing industry. She says that's a space with a large number of incumbents, but very few fintech underdogs who can really transform the industry.

"When you start digging into financial services, you start seeing just more and more of large pockets that have potential for new entrance," she said.

In addition, there's a new crop of companies trying to use financial technologies in their business, and they're in turn looking for the right type of infrastructures to support these firms.

"For fintech there's still a lot of heavy lifting that needs to be done in terms of finding a sponsor or setting up with a payment processor," she said. "They'll be a trend of companies that are going to make that easier."

Mark Goldberg, a general partner from Index Ventures, agrees that 2019 will be a blockbuster year, particularly as areas of the financial services sector such as the insurance industry moves from offline to online.

"Huge year last year, but I think this year is going to be bigger," he said. "The environment now is more exciting than it was last year."

Others disagree. Chris Sugden, a managing director at Edison Partners, says there's too much money going into fintech and some startups are overvalued. Sugden believes this is because venture firms have certain amounts of capital that they need to invest in companies, and they may be driven to dangle huge checks in front of entrepreneurs who might not need that much cash.

"I saw that fund sizes were decided by general partners dictating how much they asked the companies to take rather than entrepreneurs coming out to market," he said. "So I think there's a little bit of the tail wagging the dog."

But that doesn't mean venture funding in the fintech space will slow down by any means, Sugden said. The only two factors that might hurt these companies would be either an economic recession or a blowup from a highly valued tech company.

Goldberg holds the opposite view. He thinks the fintech space is growing so quickly that some of these companies need even more money.

"Some of the early winners from the last 5 to 10 years are starting to build such large and loyal user bases that they are going to start launching new products and services," he said. "We will absolutely see some mega rounds."