Well 2023 is in the books and we’re now in the early days of 2024.  You’re probably excited about the new diet, and hopefully you’re seeing results from the new workout.  As we work off sky high valuations and the hangover from the low rate environment, we’re seeing quite a bit of belt tightening in our ecosystem as well. We thought it might be a good idea to reflect on 2023 and think about what it means for our work as we start 2024.

We all know the last year has seen some big changes; rate hikes, bank failures, shifting VC sentiment, FTX collapse, the list goes on. In this environment mistakes are amplified, leaving new opportunities for the bold.

Life goes on; regional bank stocks have rallied in the last several weeks on the promise of the Fed easing in 2024.  Fortunately, many of the amazing people from SVB, SBNY and FRB are now in senior leadership positions under the new ownership; and we’ve heard great things about the new SVB platform and its on-going and deep support of customers. JPM has a new acquisition; and the Fed has created a new liquidity facility to make sure the banking system is shored up and safe. All's well that ends well. 

The US banking system is vast and diverse, with 4,071 commercial banks and 574 savings and loans. To survive, these institutions will need to adapt to technological, regulatory, and market dynamics - and we believe in the power of fintech start-ups to drive this forward. At the same time, new capital requirements in the form of Basel III will continue to affect banks with $100 billion or more in total assets, by requiring more capital to be held against assets and limits on the amount of leverage banks can use.

So it’s no coincidence that one of the top stories of the year was “the new age of private credit.”  For many of us, private credit is hardly new, but the scale at which this sub sector has grown is startling. Expected returns for the asset class look compelling versus what we’ve seen historically and exciting when compared to expected equity returns. According to Prequin, global private credit assets under management (AUM) were $1.37 trillion at the end of 2022. Preqin also estimates that AUM will grow to $1.49 trillion by the end of 2023 and $2.3 trillion by 2027. 

The steady flow of AUM assets into private is a very positive tailwind for the fintech ecosystem. However, the bedrock of the early stage fintech industry, the VCs, are still adjusting. We are far from the go-go days of 2021... recently Pitchbook reported that 38% of venture firms have reduced their deal making substantially, and there are many newer funds that will be hard pressed to raise a second or third fund.  

The new environment gives a distinct advantage to experienced operators who can move quickly, make tough decisions and execute efficiently. Profitability is the new black. Efficiency of execution is in. The new era of start up building (1:02) is here. And the good news is, there is plenty of dry powder in the VC space, particularly in the earliest of stages.

This new sensibility will likely lean on increased automation (cue up the AI sound track) and greater cost scrutiny around employees. AI and the efficiency it brings is all around us. We believe in AI and so does the venture capital community; money is flowing. But we also believe in human capital and the proper resource utilization of such capital.  

Taking a fractional approach to talent, particularly in the case of senior financial leadership, is one such approach and it's a trend that we see everywhere we look. For a busy founder, the time spent to source, interview, train, let alone the cost of employment - benefits, bonuses and equity - tip the scales greatly in favor of this approach.

Financial talent is expensive for a reason. Despite the impetus for firms to outsource talent, the market for financial professionals is not without its challenges. The US has a growing shortage of CPAs, which puts further cost pressure on start-ups and growing businesses hiring financial professionals.

We have purpose-built Scalepoint to create value for our operator and founder partners; and we are completely dedicated to this pursuit. We take a team approach to our work, so our clients are never surprised when we have several teammates, subject matter experts, or partners on a call to amplify the work we are doing to propel a company forward. Getting companies to key inflection points is our superpower. We want to do this faster, better and of course cheaper than any other solution in the market.

For those of you who get it, thank you; your support keeps us motivated and focused. For those of you who want to learn more about what we do, we’re here and ready to listen and find ways to support you. 

Best wishes for an amazing 2024.