• Since the S&P 500 bottomed in October, our insurtech cohort is down 34%; neobanks, brokers, and crypto are down 24%; proptech is down 22%; and high-growth fintech is down 23%. This is relevant because it is different than what happens in a typical market downturn. Normally the riskiest companies underperform as the market bottoms, and then they outperform as stocks move higher. Underperformance suggests that market participants expect some of these firms to raise capital, seek an acquirer, or cut costs in a way that materially impacts growth.

• Many of these companies remain founder-run, which means that most will reduce expenses and raise capital rather than sell.

Nondilutive debt and creative financings are likely on the radar.

• A sale at today’s low valuations is likely to be more of a last resort for most companies. However, certain companies may consider selling due to their limited offerings and the fact that launching and perfecting new products takes time and capital.

• A sale to a larger entity has advantages. Under a greater umbrella, a fintech company can complement its product offering by selling its acquirer’s products. This increases lifetime customer/member value, which is the Holy Grail for consumer fintech companies.

• On the other hand, lower valuations and spending will benefit firms operating from a position of strength. Well-capitalized fintech companies and traditional incumbents that maintain marketing budgets will earn a better ROI on each marketing dollar. Attracting competitors’ talent is also easier. But downturns are temporary, and high levels of VC dry powder remain. As a result, we expect private markets to fuel heightened competition after a recession.