Venture capitalists are becoming more selective when it comes to investing in start-up or emerging fintech firms, according to the founder of a financial consultancy business.

Jason Miles, who founded Payment Solutions Consultants in Britain, was speaking in a webinar on fintech trends and expectations for 2024, organised by British CPA advisory firm Kaufman and Rossin.

Fintech is central part of the Government’s economic plans for the island and recently the economy minister Jason Hayward announced a new fintech strategy after the number of sector companies “surged” from 23 in 2020 to 72 by the end of 2023.

“The overall market trends have shifted from stability to volatility,” Mr Miles said.

In 2020 and 2021, he said he saw a lot of easier capital raises with fintech.

“If you had a good idea, you just raised some money and started to implement it,” he said. “Now, venture capitalists want a thorough business plan in place. They want to meet regularly.”

According to Mr Miles there is also more scrutiny of the fintech business team, their background and compliance record.

He attributed the change to increasing interest rates, the higher cost of capital and geopolitical uncertainty. A turbulent public market, and fear of inflation were also having an impact on raising capital.

Mr Miles said that in some cases venture capitalists are giving their money in tranches.

“The fintech firm has to reach a certain goal to get a portion of the money,” Mr Miles said. “The venture capitalists are much more involved in the business strategy.”

Down rounds were also becoming more common due to a lack of funding with fintechs.

This is when a firm raises a financing round of venture capital funding and the pre-money valuation of the company is less than the post-money valuation of the previous round.

“There is a higher level of due diligence. Depending upon the performance in that category, you may see some down rounds of funding occurring,” added Mr Miles.

After the collapse of several regional banks in the United States, including Signature in March 2023, and high-profile crypto failures, there is now more auditing activity. Regulators are taking more notice of fintech businesses.

Regulators want to understand what banks are doing to review fintech to ensure that the business continues.

“They are looking more at those additional services fintech is providing,” Mr Miles said.

“The crypto winter continues,” he said. “There have been a high number of bankruptcies, and quite a few fintechs that have not been able to raise money.”

His advice to fintech start-ups was to stay focused. “Build a capital-efficient, highly growth-oriented business, in order to move forward in this market right now,” he said.