How B2B Fintech Unlocks Capital

Fintech funding for the first three quarters of 2023 fell to $29 billion, from a record $54 billion in the same period last year, as shown reported by S&P Global. This decline in funding has led to a renewed interest in business-to-business (B2B) fintech, with female entrepreneurs at the forefront of a shift in market strategy to seize investment opportunities.

While women founders make up 40% of business start-ups in the United States, they receive only a fraction of the venture capital funding available. In 2022, startups led by at least one female founder secured 17.2% of venture capital funds, compared to 1.9% for all-female founding teams. This glaring disparity highlights the urgent need to address this issue, especially considering the potential for women’s entrepreneurship to contribute $5 trillion to global GDP.

For the founders, the B2B fintech sector has emerged as a path to correct 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 had 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 strongly believe this change can open the door to more women entrepreneurs receiving venture capital funding,” Sasha Pilch, principal at Fin Capital, said in an interview.

Yet women make up only 30% of the fintech workforce and just 12% of founders, the study indicates. research from FT Partners. Lack of representation may prevent women entrepreneurs from seeing B2B fintech as a valuable space to build. However, a subtle shift in business models can create new opportunities for women entrepreneurs and make the journey to acquiring capital more accessible.

One example of this shift, Pilch shared, is a founder who initially aimed to democratize fixed income through direct-to-consumer products.

“I thought it might be a good investment,” Pilch said. But at the time, Pilch had just invested in an American company called Open Yield which operated in a similar field. “So I told her my thoughts on how she could get venture capital funding,” she said.

The founder then moved into B2B, turning the product into a white label solution. “Now the founder can integrate the product into any existing UK fintech app, be it Monzo, Revolut or eToro,” Pilch said.

Kathryn Petralia, co-founder of Keep Financial, says the importance of B2B fintech development is that it provides 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 is a significant opportunity to level the playing field for everyone,” Petralia said in an interview.

In addition, research reports 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 get the attention it deserves due to the perception that it lacks the appeal associated with B2C businesses. Emma Zhang, founder and CEO of PactFi, says this perception results in a lack of accessibility and proprietary, guarded information about B2B fintech that hinders innovation.

Although consumer companies can attract considerable interest from venture capitalists due to their rapid initial momentum, this often leads to lower barriers to entry, increased competition, and less defensibility revenue over time, ultimately resulting in lower valuations and funding.

In contrast, B2B companies may seem slower to start, but often have long sales cycles and higher average contract values ​​(ACV). This inherent startup difficulty creates formidable barriers to entry into the industry, leading to inflexible revenues and a steeper growth curve than consumer companies.

“In terms of multiples,” Zhang said in an interview, “B2B companies tend to attract significantly higher valuations, often 20 to 30 times higher.” In highly competitive industries where female founders face funding challenges, the integration of B2B fintech can create a self-fulfilling prophecy aimed at putting more money in the hands of women.

Fintech founders could discover a winning strategy by creating a business model that straddles the B2B and B2C domains. For example, fintech startup Frich, a social finance app for Gen Z, offers a white label option to integrate its platform directly into financial institutions and credit unions to engage and attract members of the Generation Z, given that only 4% of Generation Z consumers currently. bank with credit unions.

The power of relationships

In the B2B space, strategic partnerships tend to be less transactional, given longer sales cycles, transforming business interactions into lasting relationships. This relationship-centric approach is a valuable asset and competitive advantage.

As a founder, you can grow from being a salesperson to building lasting relationships that span many years. This transformation is crucial because it can shift your mindset from scarcity to one empowered by support and relationships, effectively serving as a moat protecting your business.

For women venturing into B2B fintech, a few additional tips can help pave the way to success:

Mentoring and Networking: Look for mentors and networks specifically tailored to female fintech entrepreneurs. These connections can offer advice, support and access to valuable resources.

Leveraging gender diversity: Enjoy the benefits 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, traits essential to success in the complex world of fintech.

Ultimately, with the right strategy, support and focus on building lasting relationships, women can thrive in this transformative sector, driving innovation and paving the way for a more inclusive and diverse fintech landscape .