Fintech funding for the first three quarters of 2023 dropped to $29 billion, compared to a record high of $54 billion during the same time last year, as reported by S&P Global. This decline in funding has led to a renewed focus on business-to-business (B2B) fintech, with female entrepreneurs spearheading a shift in market strategies to capture investment opportunities.
While female founders make up 40% of new business founders in the United States, they receive only a fraction of the available venture capital funding. In 2022, startups led by at least one female founder secured 17.2% of venture capital funds, dropping to 1.9% for all-women founding teams. This glaring disparity underscores the urgent need to address this issue, especially considering the potential for female entrepreneurship to contribute $5 trillion to the global GDP.
For founders, the B2B fintech sector has emerged as an avenue for rectifying this imbalance.
An Industry for Female Entrepreneurs
B2B software as a service (SaaS) grabbed 44% of funding in the first quarter, surpassing B2C fintech, which held a 34% share, according to Dealroom.co. This trend has prompted investors to encourage founders to recalibrate their market strategies, prioritizing B2B models to increase their chances of securing funding.
“I firmly believe that this shift can open doors to more women entrepreneurs receiving venture funding,” said Sasha Pilch, Principal at Fin Capital, in an interview.
Still, women comprise only 30% of the fintech workforce and a mere 12% of founders, as indicated by research from FT Partners. The lack of representation can make it hard for female entrepreneurs to see B2B fintech as a valuable space to build. However, a subtle pivot in business models can create fresh opportunities for female entrepreneurs and make the journey to capital acquisition more accessible.
One example of this shift, Pilch shared, is a female founder who initially aimed to democratize fixed income through direct-to-consumer products.
“I thought this could be a potentially good investment,” Pilch said. But at the time, Pilch had just invested in a company named Open Yield in the U.S. that operated within a similar realm. “So I gave her my thoughts on how she can get VC funding,” she said.
The founder then pivoted to B2B, transforming the product into a white-labeled solution. “Now, the founder can integrate the product into any existing U.K. fintech apps, whether Monzo, Revolut, or eToro,” Pilch said.
Kathryn Petralia, Co-Founder of Keep Financial, says the significance of building in B2B fintech is that it is fertile ground for women’s aspirations. Fintech can democratize access to various services, from essential financial services to personal growth and education. “For women who care about these issues, there’s a significant opportunity to level the playing field for everyone,” said Petralia in an interview.
Additionally, research indicates that venture capital firms that increase their number of female partners by 10% experience a notable 1.5% increase in annual returns and achieve 9.7% more profitable exits.
B2B vs. B2C: A Dual Perspective
B2B often doesn’t receive the attention it deserves due to the perception that it lacks the allure associated with B2C ventures. Emma Zhang, Founder and CEO of PactFi, says this perception results in a lack of accessibility and exclusive, gate-kept information about B2B fintech that hinders innovation.
While consumer businesses may garner significant early-stage interest from venture capitalists due to rapid initial momentum, this often leads to lower barriers to entry, increased competition, and diminished revenue defensibility over time, ultimately resulting in lower valuations and funding.
In contrast, B2B ventures may appear slower to start but often feature long sales cycles and higher average contract values (ACV). This inherent difficulty in getting started establishes formidable barriers to entry in the sector, leading to sticky revenues and a more pronounced growth curve than consumer businesses.
“In terms of multiples,” Zhang said in an interview, “B2B ventures tend to attract significantly higher valuations—often 20 to 30 times more.” In highly competitive sectors where female founders face funding challenges, building in B2B fintech can create a self-fulfilling prophecy for getting more money in the hands of women.
Fintech founders may discover a winning strategy by creating a business model that straddles both B2B and B2C realms. For instance, fintech startup Frich, a social finance app for Gen Z, offers a white-labeled option to integrate its platform directly into financial institutions and credit unions to engage and attract Gen Z members, considering that only 4% of Gen Z consumers currently bank with credit unions.
The Power of Relationships
In the B2B realm, strategic partnerships tend to be less transactional, given the longer sales cycles, morphing sales interactions into enduring relationships. This relationship-centric approach is a valuable asset and a competitive advantage.
As a founder, you can evolve from feeling like a salesperson to establishing enduring relationships that span many years. This transformation is pivotal as it can shift your mindset from scarcity to one fortified by support and relationships, effectively serving as a moat protecting your company.
For women venturing into B2B fintech, a few additional tips can help pave the path to success:
Mentorship and Networking: Seek out mentors and networks tailored explicitly to female entrepreneurs in fintech. These connections can offer guidance, support, and access to valuable resources.
Leverage Gender Diversity: Embrace the advantages of diversity within your team, as studies have shown that diverse teams are more innovative and outperform their homogeneous counterparts. Collaborative and inclusive environments can enhance creativity and problem-solving, essential traits for success in the complex world of fintech.
Ultimately, with the right strategy, support, and a focus on building lasting relationships, women can thrive in this transformative sector, fostering innovation and paving the way for a more inclusive and diverse fintech landscape.
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