Finance teams are increasingly automating their operations with AI tools, opening up opportunities for B2B fintech startups.
Business-to-business (B2B) software, particularly ‘CFO tech’, is the current hot area in financial technology, according to Craig Schedler, the recently installed head of financial software producer Intuit’s corporate venture capital arm.
Schedler joined Intuit Ventures last month after almost a decade running financial services firm Northwestern Mutual’s CVC unit, having made the GCV Powerlist earlier this year. The shift from consumer finance to business software mirrors what he sees as the current movement in fintech.
“Overall, if I look at the biggest trend, it is much more on the B2B side of things,” Schedler says. “Technology and solutions that help small business owners manage the books and manage how they run their business on a day-to-day basis.”
More specifically, he adds, there is a focus on technology to help the chief financial officer of an enterprise-size business, or the finance team of a smaller business, operate more efficiently.
“There are a lot of manual processes,” Schedler says. “A lot of spreadsheets that are used to handle pretty complex and integral parts of running a finance operation. I think the ability to bring technology to that to automate and improve business analytics and business outcomes is super interesting.”
Several startups in that area have raised big money in recent months, Schedler adds, citing Ramp, the developer of a software platform that uses artificial intelligence to automate everything from treasury management to expense account analysis and procurement payments. Ramp closed a funding round in July that more than tripled its valuation to $22.5bn in just over a year.
Schedler is also beginning to see more activity on the consumer side of fintech, as startups look to build products with AI at their centre.
“There are a lot of what I think of as third-generation consumer fintech startups we’re seeing emerge”
“I think consumer is sort of thought as being played out, or what’s been done has been done already on the consumer side,” he says. “But there are a lot of what I think of as third-generation consumer fintech startups we’re seeing emerge.”
Those third-generation startups are leveraging AI for consumers but doing so to a wider degree than the previous wave, which largely focused on digital investment. This new batch is looking at helping individuals manage their finances in a holistic way, rather than just focusing on one element. The “killer” solution hasn’t emerged yet, but Schedler believes it’s coming.
“An AI-enabled platform that can really provide answers to tailored financial questions for consumers is something that would be incredibly powerful,” he says. “People want personalised advice, and I think it’s a question of how that personalised financial advice can help them prosper and how that is delivered.
“Yes, it’s one thing if you can do web searches and….there are tools out there. But [a product] with AI capabilities that really knows and understands, and which can provide customised solutions to consumers is a really powerful tool we will see. We’ve seen some very early versions of it, but that’s an area that, if I were trying to build something, is where I would focus.”
The increase in exits is set to last
Schedler was still at Northwestern Mutual Future Ventures in June when it celebrated a huge exit, as online banking services provider Chime floated in an $864m initial public offering valuing it above $11bn. He is optimistic that this is part of an ongoing trend for tech startups.
“I think we’re in a pretty favourable environment for exits in general, between IPOs and M&A, over the next year at least,” he says. “Obviously, VCs want to start returning money to their limited partners, and so I think we’re going to see a healthier ecosystem around the exit side.”
Although the IPO market has recovered this year after a long slump, there should also be increased acquisition activity, Schedler says, as the health of the IPO market is also an indicator for the health of the M&A market. Intuit Ventures has already benefitted from that, with accounting software producer Xero’s $2.5bn acquisition of portfolio company Melio, the developer of an integrated payment platform for small businesses, in June this year.
The shift isn’t just about returns, it’s helping early-stage investors assess the deals they’re making now, Schedler says. Seeing more exits gives investors more clarity about what kinds of exits are possible down the line and, therefore, what prices you should be paying in earlier rounds. Intuit Ventures’ sweet spot is around series B but the team talks to companies from seed stage, and has there has been a sizeable increase in valuations.
“In particular, we’re seeing very aggressive early rounds”
“We’ve seen some definite upward movement in early-stage pricing, probably in the last six to nine months,” he says. “I would say that, in particular, we’re seeing very aggressive early rounds.”
One reason for that aggression is that later-stage startups are closing rounds at hefty valuations, and that is pushing up valuations earlier on because the same pricing metrics are generally being used for smaller startups.
“Companies can scale so much quicker now,” Schedler says. “This ability to take a very small team with a big market opportunity – because they’re AI at their core from the beginning, their ability to scale from zero to $10m, $20m, $30m in revenue is unlike anything that’s been seen in the past.
“People are willing pay into that growth story because they have much more confidence in it, relative to where they may have had confidence, say, three years ago in terms of how quickly companies can scale to really meaningful eight-figure revenue.”
