01 Dec 2022

2022 In Review: Fintech’s Reckoning?

There has been little shortage of news in the tech sector in 2022, as the market has hardened, recession has creeped into the vernacular and investor scrutiny has increased. As the year comes to a close, MHP’s Ellie McGarahan takes a look at some of the key conversations that have been driving the ecosystem in the last 12 months.

Ellie McGarahan

2022 has been characterised by a stark amount of change in the European tech startup sector. From mass layoffs (Meta and Twitter in the last month alone) to a boom in climate-focussed firms, VCs holding back on investment to shock takeovers of some of the world’s biggest social media platforms – there has been little shortage of news.

And it follows that as the landscape has dramatically changed, so has conversation around Europe’s fintech darlings. Where once investors pursued aggressive growth, the tide has turned and appetite is now geared much more toward implementing longevity and sustainability.

As the year nears its end, we take a look at the three conversations that have been most prevalent in the ecosystem in the last 12 months. 

In crisis comes clarity

“Crisis brings clarity to what’s really important,” said Michelle You, cofounder and CEO of climate tech company Supercritical, at this year’s Sifted Summit.

Many firms have learnt this the hard way. It’s a well-known fact that tech startups have not benefitted from the same seemingly endless flow of VC cash this year as in 2021, as the market has hardened, recession has creeped into the vernacular and investor scrutiny has increased. As a result, many have had to pivot their growth strategies in order to survive.

This pivot means that businesses are being forced to think about what works in “the real world” in the absence of external funding to keep them afloat. As a result, they have needed to become crystal clear about: who their customers are, as well as their wants and needs; what their mission and vision is, and why this really matters in the current market downturn; and how each staff member can provide impact whilst working towards this united objective.

This “clarity” has, for many, resulted in job cuts. For others, it has slowed international expansion or product rollout plans. But as we head into 2023, this clarity of mission also presents many fintech firms with the opportunity to scale efficiently and creatively, whilst clearly communicating their purpose and permission to play. Taking the internal chaos caused by Twitter’s recent redundancies as a case study, good communication with all stakeholders has one of the most important roles to play in this switch.

Investors now want to see profitability, rather than growth at all costs

Linked to a refocus of purpose, the presiding sentiment shared at Sifted Summit this year made clear that investors are now hyper-focussed on profitability and longevity as opposed to the aggressive growth witnessed in 2020 and 2021. This is to be somewhat expected in a year that has seen VC funding into European startups fall to $16 billion in Q3, when compared with the $28 billion deployed in the same timeframe in 2021.

“The promise of jam tomorrow won’t cut it in today’s market,” as Fronted CEO Jamie Campbell remarked at the Summit.

Consensus amongst CEOs, founders and executives shows investors are demanding considerable progress from the businesses they have invested in, and proof from those wanting to join VC’s portfolios that they have a clear roadmap to profitability – if not already generating sizeable profits. Many have realised that hyper growth is futile if it’s not also sustainable.

Being able to clearly communicate credibility and difference has therefore been vital and will continue to be so in the next 12-18 months.

Green is the future of tech

One tech subsector that has arguably been 2022’s outlier is climate tech. Despite the overall slowdown seen in tech, climate tech investment is seeing considerable growth across Europe and beyond. According to a recent PWC report, climate tech funding this year has so far accounted for over a quarter of every venture dollar invested in 2022.

We’re expecting to see this funding ratio close even further in the next 12 months as the luxury of time wanes and impetus for net zero solutions and sustainable reporting frameworks continues to rise. Starting in 2023, countries signed up to the Paris Agreement will be required to report transparently on actions taken and progress made towards climate change mitigation, adaptation measures and support provided or received. The potential for impact that climate tech startups have in helping governments and corporates reach their sustainable development goals has yet to be fully realised.

The robust results of climate tech funding rounds so far are encouraging, but they fall some way short of the investment needed to tackle climate change. The task for climate tech firms will therefore be building momentum, resilience and investor confidence in the months ahead. Clear, coherent positioning in an increasingly complex and competitive marketplace will prove paramount.

What remains is a positive outlook for the tech startup sector in 2023. This year has brought clarity to many and shown who has been able to shift to new demands, whilst interest and technological uptake has continued to grow in many regions of the world. This expansion, combined with the development of a number of subsectors, more investment in less “mature” jurisdictions and surging corporate interest is expected to boost investment as we enter 2023. At the same time, those that have had to undertake job cuts, product pivots and market withdrawals are likely to emerge stronger and leaner with a renewed focus for the year ahead. And with reports that VCs are sitting on $290 billion worth of committed capital, we might just see the sector re-energised in a return to its pre-2022 glory days.

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