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Forecast: Top Venture Capital Market Trends In 2023

SGAnalytics_Blog_Forecast Top Venture Capital Market Trends In 2023
Published on Nov 10, 2022

Fintech experienced a rather upward swing in 2021 when it came to funding. However, these venture capital numbers fell in 2022. And the existing scenario is expected to continue in 2023 as well. However, the retreat from this is more about strategy than perceived weakness within the industry. 

The fintech venture capital marketplace is looking strong in 2023. However, it may not repeat the record-breaking growth of 2021. While many of the drivers are in place for growth, investors are exploring new early-stage deals that demand less investment. 

In 2021, fintech solutions experienced a favorite investment of venture capitalists that accounted for more than $130 billion in venture funding. Moreover, fintech venture investment increased by more than 175% from 2020 to 2021. However, 2022 was considered a turbulent year on many fronts. The sustained pandemic outbreak, war-induced energy crisis, crypto market crash, and constantly changing market conditions - all became the new normal for businesses. 

Read more: How is Multi-stakeholder Assessment Helping to Create Long-Term Sustainable Value? 

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The Fintech Funding Scenario In 2022 

The drivers of Fintech investment in 2021—convenience, security, and flexibility- experienced upward growth in 2022. While fintech investments are unlikely to reach the highs of 2021, venture capital investors still seem interested and are modifying strategies to match the flow of the markets. VCs are eying new early-stage deals. Startups and other smaller fintech firms are adopting more agile operations to weather the existing market conditions due to rising interest rates, inflation, and other issues. The recent fintech news is indicative of a global shift in the venture capital and investment market. In India, fintech assets are growing and are expected to hit the $1 trillion mark in 2030, demonstrating growth outside standard regions. 

Looking forward, it can be anticipated that global economies will undergo further changes in the way people live and interact with one another. Regarding the changing landscape of the fintech venture capital industry, the trends that will drive the course in 2023 are listed below. 

Where is the Fintech Venture Investment Market Headed in 2023? 

With growth still occurring in 2023, venture capital investments and fintech companies will explore and opt for stable moves rather than aggressive ones. While 2021 and 2022 experienced a high-risk, high-reward scenario, 2023 will see a more conservative approach. How will the venture capital investment market grow in 2023, and what can investors expect for the upcoming trends? Let's explore the trends that will continue to drive evolution in this space. 

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Venture Capital Market Trends 2023 

  1. Significant trajectories for ESG-focused Fintech Products 

Environmental, social and corporate governance, also known as ESG, is emerging as a domain that is attracting huge attention and an influx of investment funds. ESG funds experienced a record inflow in 2022. Bloomberg estimated that global ESG assets are likely to surpass the $53 trillion mark by the year 2025. With investors, governments, and consumers continuing to pressure ESG missions in investments, venture capital firms will experience a surge in sustainable investments. Investors in ESG funds must chase opportunities that align with the vision of transparency in ESG investing. Investment in ESG funds is becoming more common and even a mandate in many cases. 

Read more: How Fintech Companies are Revolutionizing B2B Payments 

Investors are now willing to ride this wave of the latest fintech trends, along with being socially responsible. Fintech venture capitalists with ESG mandates are also reaping the benefits by uniquely positioning themselves for exponential growth. 

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  1. Fostering Deal in Underdeveloped Areas 

On many levels, fintech venture capital has been a financial liberator. From apps to investment structures, they are assisting in creating more accessibility for consumers at all income levels. They also enable investors to foster deals in underdeveloped regions. Fintech venture capital is driving evolution that is being considered a revolution. As a result, center capitalists are expecting to see a disruption in the traditional investment markets and practices in 2023. 

  1. Growth in M&A Activity 

With the tech space continuing to evolve at a robust pace, it is leaving a trail of opportunities for investors in innovation's wake. Venture capital investors are exploring the new avenue and offering their backing to foster M&A activities. With investors' continuous support, startups are seeing healthy M&A propositions for all types of selling in the fintech markets. 

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  1. A Rise in Embedded Services 

With consumer demands for convenience and flexibility rising, businesses are embedding financial services into their processes. Investment and savings apps and automated invoicing solutions are leasing the investment front. While it is impossible to conclude how things will pan out for venture capital in the year 2023, it can be inferred that the industry trends pertinent to this sector are likely to have a profound impact on business. Embedded finance services and alternative financing are some of the trends venture capitalists should keep a close eye on. 

Read more: Fintech in the US: The Top 8 Players to Look Forward to in 2022 

The Dawn of New Investment Opportunities   

The latest data suggests a slowdown. In the initial six months of 2022, venture capital investment in fintech companies in the UK fell to $9.6bn. This was perceived as a reduction of two-thirds compared with the same period in 2021. For the fintech venture capital market, a long-term secular growth story still needs to play out. While a moderate funding environment seems plausible, investors agree that since the pandemic, the sector has been experiencing a more linear trend line when it comes to funding volumes.  

The focus has been re-shifting on many fintech businesses. While it is hard not to see how venture capital financing of fintech will be driven by interest rate movement, the year 2023 is likely to experience much progress and will continue to move upwards. In the longer term, a sustained focus will enable fintech to solidify its long-term story.  

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With the world still getting a grip over the rising interest rates, soaring inflation, and ongoing geopolitical strife, how is the venture capital market transition coming along? 

Key Takeaways: 

  • Venture capitalists need to recognize the requirement for working together, as new fintech startups and established names are striving to work together to redefine the financial industry. 

  • The big names in the financial sector can also opt to invest in venture capital startups to gain a foothold in this digital-only banking industry. 

  • Going into a transparent partnership is considered a fruitful option by many. 

Read more: Ways Private Equity and Venture Capital Firms can Protect Themselves from Cyber Risks 

In Conclusion 

The future of venture capital investment is moving from a monolithic system to a hybrid multi-cloud architecture. This involves the integration of data analysis and AI products to offer a seamless experience and extreme digitalization within the investment ecosystem. 

However, despite the chaos and uncertainties brought in by COVID-19 upon economies worldwide, fintech venture capitalists across the globe are reporting growth on average. While the growth is not the same for all regions, the investment industry is taking quick action to respond to the challenging dynamics of the market by tweaking its products and services or by offering new ones based on the current market conditions. 

Yet, fintech venture capitals are still contended due to the significant headwinds in operations, fundraising, and regulatory challenges globally. Before the pandemic, venture capital startups were facing difficulties in funding as investors were choosing to prioritize fintech with established business models. There have also been interesting cuts and the slowdown of economies that fintech is facing. 

However, on the upside, experts believe that the future of the fintech venture capital industry will take an advantageous turn and create new opportunities. Global economies are now opening up to the virtual scramble of new investment standards. 

All in all, the future of fintech venture capital looks bright. While the 2023 funding totals may not rival the desired growth, fintech will still remain a top priority for VC investments. 

With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.                        

A leader in the Venture Capital space, SG Analytics partners with global companies and assists them in acquiring and realizing strategic value from their investments. Contact us today if you are in search of an investment research firm to leverage custom research support across a broad range of asset classes and enhance your investment decisions.  


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