What were key takeaways from RBC Capital Markets’ recent annual fintech conference?
Jason Gurandiano: With 430 attendees and 740 investor interactions, the conference delivered by far the largest engagement we’ve seen in five years. There was strong engagement from both public and private investors looking to deploy incremental capital into the sector.
The private markets are just as robust as the public markets, with private financing exceeding $110 billion over the last 18 months alone. That reflects the bullish view of investors on the prospects for fintech, even against an uncertain backdrop.
Matt Thomas: Private equity firms and growth equity funds are really on the hunt for that next new investment. On the public side, a lot of the energy is around understanding how AI and other trends will impact current investments.
A few CEOs spoke at the conference about how ‘AI-washing’ no longer works. Companies need to point to real operational impacts, both on revenue and costs.
People also focused on the need for fintech businesses to monetize data that they’ve been sitting on, which have not necessarily been driving revenues. That’s changing rapidly for some of our featured companies with attractive footprints as system-of-record and workflow solutions.
"The private markets are just as robust as the public markets, with private financing exceeding $110 billion over the last 18 months alone. That reflects the bullish view of investors on the prospects for fintech.”
Jason Gurandiano, Head of U.S. Technology Banking and Global Head of Fintech Banking
How is fintech standing up to AI-driven disruption?
Gurandiano: We’ve seen a bifurcation between the fintech software model versus the broader software model. In terms of credit spreads, for example, financial software is back to pre-SaaSpocalypse levels, whereas the broader software credit sector remains heavily impacted.
Thomas: The specialized software and intense regulation of finance has led to subvertical specialists who have built really strong businesses, in part by being highly embedded in their end customers' operations.
Gross retentions for system of record businesses in financial software tend to be in the very high 90s. Contracts can be anywhere from five to 10 years, compared with one or two for a typical public SaaS company. That erects some significant barriers to disruption.
Deeply embedded companies are also very well positioned to go on offense. We’re seeing a lot of companies in this space aggressively rolling out their AI solutions, but also new products that leverage their 20 to 30 years of underlying proprietary data for their customers.
Asif Ahsan: The perspective of third-party consultants can show how replicable a software stack really is. We've actually seen transactions which have either been retraded or just shut down completely, because the claimed competitive moats really didn't exist.
That’s another area where fintech is much more insulated from AI disruption. For example, a large enterprise like RBC isn't going to vibe-code its own software stack: there's value in working with an established vendor.
"Deeply embedded companies are very well positioned to go on offense. We’re seeing a lot of companies in this space aggressively rolling out their AI solutions.”
Matthew Thomas, Managing Director, Technology Investment Banking
What defines a best-in-class fintech today?
Thomas: Retention is important, especially given questions about the potential for AI to disrupt incumbent businesses. To capture interest, companies need to have gross retention in the mid-90s or higher.
Investors are also looking for ability to drive growth within the base—and they want to see some of that growth defined as AI-driven revenues. We’re seeing a lot of companies emphasize their bookings momentum for new AI-powered products they’ve launched.
The acceleration of innovation is creating a faster upsell cycle. New features that could have taken 12 to 18 months are now being launched within a month or two.
Ahsan: Even amid market volatility, growth remains the single most important factor when investors are valuing a company, or when a strategic is considering an acquisition.
What we're seeing is very binary. Winners are achieving really robust multiples, and perceived losers are trading near cyclical lows. If people don't think a company is going to be around or be much bigger in two to three years, they frankly aren't interested.
It’s very much a ‘show me’ market. Buyers are looking for consistent historical growth before they believe projections. When we're selling companies, we're focusing on bookings to revenue, forward pipeline, and win rates.
"What we're seeing is very binary. Winners are achieving really robust multiples, and perceived losers are trading near cyclical lows.”
Asif Ahsan, Managing Director, Technology M&A
Which sub-verticals are most promising?
Thomas: Wealthtech and Insurtech have attracted the most interest. That’s partly because some at-scale vendors in those spaces seem to tick all the right boxes as the system of record that underpins customers’ business. We’re bullish on M&A in both those sectors over the next 12 to 18 months.
Capital markets technology has strong interest, but the underlying customers with their own AI budgets are asking whether they can do this better. Incumbents have a little less advantage on that front, so we see some of the smaller vendors getting good traction with their offerings.
