Mid-2025 Outlook for Early-Stage Financial Technology Companies

As we navigate the second half of 2025, the fintech landscape presents a compelling mix of renewed optimism and persistent challenges. After a prolonged winter, fintech IPO activity is finally showing signs of life in 2025. Through May 2025, fintech startups have brought in $18.3 billion in funding so far this year, representing a significant recovery from the depths of 2022-2023. PYMNTS FinTech IPO Index was up more than 58% through the previous year, far outpacing the Nasdaq's 28.6% advance.

The IPO drought and new signs of life (Chime, Circle) illustrate to us just how arduous and precarious of a journey it is to a public exit. While good news is welcome, for early stage businesses it is just distracting background noise. The most important thing was and remains building a solid, sustainable business.  

In comparison the venture funding environment shows a tale of two stories. Global venture funding in Q1 totaled $113 billion, up 54% year over year, but global early-stage investment fell to $24 billion—the lowest level in at least five quarters. 

There’s little to no bad news in this data. Innovation is happening globally and investors are returning to a more grounded, fundamental approach to portfolio selection. Seed funding fell 14% year over year to $7.2B; but this is not indicative of a market short on ideas, entrepreneurs, and capital. 

Looking at our core market, Lending remains a significant opportunity for fintechs, having only penetrated about 3% of the $2 trillion in global lending revenues. Private credit funds are flush and competition for good deals (scaled and scaling, easy to understand assets, well capitalized companies) is heated. By some estimates, there is roughly $280B of dry powder. 

Areas of note where we are seeing robust activity: Economies in Latin America are expanding and creating opportunities for our services and our investors and B2B fintech segments. Innovation in financial infrastructure, particularly cross border payments and lending continue to catch our focus and attention. 

Turning to AI, 42% of U.S. venture capital was invested in AI companies in 2024, up from 36% in 2023 and 22% in 2022. AI is attracting a lot of capital, but this is clearly capital deployment ahead of adoption. Are customers on the fence until benefits are proven and prices come down? Most likely. Given the ease of creating an AI product, are we likely to see a repeat of what we saw in the dot.com boom - too many look-alike businesses that are indistinguishable from each other in terms of functionality and price? We think so. 

We think the way to compete in an AI world is through hyperspecialization. Forget about the winner takes all market of the past; we see a world where many smaller companies are serving smaller, well-defined niches. This potentially upends the investment return power law for VCs, where one knock-out success covers a lot of sins / returns the fund. For investors, the pareto might not work in the future state - a portfolio will require several valuable, sustainable companies to return a fund. For founders, it means creating businesses rooted in fundamentals - strong unit economics, high engagement, and a focus on sustained profitability.

Here’s a quick summary of our advice: 

With respect to capital strategy, particularly in equity raising: (1) Extend runways - push to target 18-24 months of runway (2) Prepare for VCs to be selective - focus on unit economics, cash burn, AI integration, and regulatory preparedness, (3) Consider strategic partnerships particularly with private credit partners, many of whom are seeking dedicated partners to drive lending volumes. Lastly, we’re seeing a trend where embedded finance and niche specialization are winning out over broader, all things to everyone models. 

We remain optimistic about the long-term prospects for well-positioned fintech companies and dynamic founders.  We look forward to continuing to support our portfolio companies in navigating this evolving landscape.

This market update reflects conditions as of late June 2025. Please reach out with any questions or to discuss specific implications for your company.