Sheel Mohnot, co-founder and general partner of Better Tomorrow Ventures (BTV), has one simple answer for anyone claiming that investing in fintech has lost some of its attractiveness.
“The world of finance is huge. About 20% of global GDP is financial services, and it’s still not digital enough,” he told TechCrunch.
Many financial transactions are still handled manually, and Better Tomorrow Ventures — led by Mohnot (a former general partner at 500 Startups) and NerdWallet co-founder Jake Gibson — aims to help change that.
“The massive digitization opportunity is still ahead of us,” Mohnot told TechCrunch. The firm’s limited partners seem to agree.
Better Tomorrow Ventures just raised a $140 million third fund, nearly matching the $150 million second fund, which was announced in early 2022 toward the end of the ZIRP (zero interest-rate policy) boom.
“We actually planned to make the fund smaller this time,” Mohnot said. “In 2021, things went super overboard. Every company we invested in immediately raised a follow-on round at a crazy price, and that was probably bad,” Mohnot said.
Now that the enthusiasm for fintech is tamer, BTV doesn’t need as much capital to continue to participate in its best startups, he explained.
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The firm also didn’t tap into the $75 million opportunity fund raised alongside its second fund in 2022. But that capital may come in handy at some point soon. Since many of the recent and planned IPOs are in the fintech space, including Chime, Klarna, Navan, and Wealthfront, there’s hope that late-stage investors will become more excited about the category.
At the early stages, fintech investing has certainly picked up over the last year. For instance, BTV sees great opportunities in disrupting accounting.
“There’s a massive shortage of accountants. Accounting firms are all turning away business, and it’s a perfect application for AI,” Mohnot believes.
The firm has already backed three accounting startups: Basis, which recently raised a $34 million Series A led by Khosla Ventures; Layer, an embedded accounting platform for small and medium-sized businesses; and InScope, a startup that helps automate audited financial statement drafting.
But it’s not just accounting: Mohnot is a strong believer in AI’s broad applications within fintech. “Financial Services is very labor-intensive. There’s underwriting, compliance, fraud detection, customer support,” he said. “AI can do all that at a lower cost.”
Other notable companies in BTV’s portfolio include Coast, a payments platform for fleet and truck drivers; Unit, a banking-as-a-service startup last valued at $1.2 billion; Relay, an online banking and cash management platform for small businesses; and Unit, a banking-as-a-service startup last valued at $1.2 billion.
For its third fund, the firm plans to invest in 30 to 35 companies, with check sizes ranging from $500,000 to $3.5 million.