Welcome back to The Interchange, where we take a look at the hottest fintech news of the previous week. If you want to receive The Interchange directly in your inbox every Sunday, head here to sign up! It was a relatively quiet week in fintech startup land, so we took the time to scrutinize where we’re seeing the most funding deals.

Seed deals everywhere

Across the board in all industries, except perhaps AI, we’ve seen a big drop in later-stage funding deals and no shortage of seed-stage rounds.

When it comes to fintech, I can tell you at least anecdotally that the vast majority of pitches that hit my inbox are for seed rounds. It is very rare these days to get pitched for Series B or later, or even for Series A rounds.

Venture banker Samir Kaji, co-founder and CEO of Allocate, points out that the private markets often take their cues from the public markets and as such, it’s no surprise that we’re seeing far fewer later-stage deals and a plethora of seed rounds. The Fintech Index — which tracks the performance of emerging, publicly traded financial technology companies — was down a staggering 72% in 2022, according to F-Prime Capital’s State of Fintech 2022 report.

“Seed is typically the least affected because those companies are just too early to really feel like you have to worry about where the public markets are,” he told me in a phone interview last week. “We’re so far divorced from the time period where these companies are going to be large enough where the public market sentiment is going to really matter.”

Allocate, which recently just closed on $10 million in capital, is currently an investor in about 60 funds. But Kaji is seeing the tide beginning to turn.

“The investment pace in 2022 was just so slow, and the beginning of 2023 was incredibly slow as well, but we’re starting to see things pick up as people are now starting to see that the bid ask on deals at the Series A and later are starting to narrow,” Kaji added. “And I think entrepreneurs have started to capitulate to this new environment. This always is the case — it’s like an 18- to 24-month lag in the public markets. So I would expect much more later-stage activity again in the next 18 to 24 months.”

I asked our friends at PitchBook what they’re seeing, and unsurprisingly, in the second quarter, there were more seed deals forged in the retail fintech space (135) compared to any other stage. When it came to the enterprise fintech space, early-stage deals accounted for most of the deal activity (239) with seed-stage coming in a close second (221), according to PitchBook.

Will we start seeing more later-stage deals in 2024? I sure hope so. Will we see any fintechs actually go public? That’s probably less likely. But you can be sure we’ll be on the lookout.

Slope continues its climb

It’s always great to see startups rise through the ranks, especially at a time when fintech hasn’t been doing so well. One of the companies I have had the pleasure of following is Slope. The company, founded by Lawrence Murata and Alice Deng, developed a business-to-business payments platform for enterprise companies.

When covering the company’s initial $8 million seed round in 2021, I learned that Slope’s origins came from Murata watching his wholesaler family struggle with an easier way to manage payments. He and Deng built the company so that moving to a digital order-to-cash workflow was seamless.

Last year, Slope raised another $24 million in Series A funding, and this week banked $30 million in a venture round led by Union Square Ventures, which co-led the Series A. It also included participation from OpenAI’s Sam Altman and a list of other heavy VC hitters. Read more. — Christine

Slope co-founders Lawrence Lin Murata and Alice Deng. Image Credits: Slope

Weekly News

TechCrunch Opinion: Fintech actually has a value system: Here’s how we can reclaim it

Introducing the a16z Global Payments Hub

Other items we are reading:

Apple is ordered to face Apple Pay antitrust lawsuit

Greenlight celebrates launch of web-based financial literacy library

Funding and M&A

As seen on TechCrunch

Pan-African contrarian investor P1 Ventures reaches $25M first close for its second fund

QED and Partech back South African payment orchestration platform Revio in $5.2M seed

Crediverso takes on legal after $3.5M capital infusion

Series, which aims to replace ERP systems, lands $25M

Seen elsewhere

Luge Capital: $71M first close of second fund completed

Colektia completes purchase of non-performing loans for $72M

Mexico’s albo receives $40m in Series C funds, striving for neobank profitability

Grow Credit Inc., a top 30 fintech app, secures $10m funding with USAA as lead investor in Series A round

StretchDollar raises $1.6M in pre-seed funding

WealthTech Vega exits stealth with over $8M funding

Farther closes Series B funding round to gain $131M valuation — This new round comes a little over a year after the wealth tech firm raised a Series A on a $50 million valuation. Check out TechCrunch’s earlier coverage of Farther.

Image Credits: Bryce Durbin

If you’re an early-stage founder, the crazy days of 2021 are a distant memory. Money is tight, and the process of getting more is as unsettled as ever.

The past few tumultuous years have tossed out the milestones that defined previous Series A benchmarks. But that doesn’t mean the game is lost. At this year’s TechCrunch Disrupt, three investors shared their perspectives on what’s changed, what’s working today, and what advice they’re giving founders who are looking to raise a Series A.

“As companies mature to seed and Series A, a year and a half ago, if you were at a million or even approaching a million in revenue, a Series A would come together in a snap. That has changed really quickly,” Maren Bannon, co-founder and managing partner at January Ventures, told the audience. “Now it’s probably more like 2 [million] to 3 million in revenue where those rounds come together in a snap.”

For founders, the moving goalposts can be incredibly frustrating — especially since the reasons for it are beyond their control. After a remarkable 13-year bull run, uncertainty crept into the market last year, dampening investor appetite for risk. Rising interest rates compounded the problem.

As a result, Series A investors have pulled back dramatically. “What we’ve noticed in the statistics is that the Series A deployment is down 60% over the last year and a half. The amount deployed per Series A is down 25% from $10 million to $7.5 million. And the number of deals getting done is much fewer,” said James Currier, general partner at NFX.

“The bulk of seed stage companies were [successfully] raising off of story, not traction,” Loren Straub, general partner at Bowery Capital, said of market conditions two years ago. “I think there’s been a real shift in focus towards traction, momentum, legitimate product-market fit.”

“A lot of the Series A investors are understandably looking for a higher bar,” she added.

A market crowded with venture capitalists hasn’t helped, either, Currier said. Back in the ’90s, there were about 150 general partners in the U.S., he said. Today, there are more than 31,000 listed on Signal, a network of investors his firm runs.

The highly anticipated criminal trial for Sam Bankman-Fried, former CEO of bankrupt crypto exchange FTX, begins Tuesday to determine whether he’s guilty of seven counts of fraud and conspiracy.

The 31-year-old co-founded FTX in 2019; within a few years the once third-largest crypto exchange’s valuation hit $32 billion at its peak. It’s now trying to claw back any funds to distribute to creditors.

But how did the once third-largest crypto exchange get here?

Before FTX, Bankman-Fried co-founded crypto-trading firm Alameda Research in 2017. He co-founded FTX in 2019 as a complement to Alameda, to help bring in revenue and liquidity for the trading arm.

Within two years, over 80 investors provided about $2 billion in capital to FTX, helping Bankman-Fried propel his vision into a reality. In January 2022, the company raised $400 million in a Series C round, boosting its valuation to $32 billion. That was its last round of public funding.

The company gained somewhat mainstream recognition with branding deals and partnerships. For example, in 2021 it bought the naming rights for the Miami Heat’s home arena. FTX also got its name branded on Major League Baseball umpires’ polos, and it partnered with celebrities like Tom Brady and his ex-wife, Gisele Bündchen, as well as Steph Curry, Shaquille O’Neal and Naomi Osaka, among others. He also had close ties to U.S. regulators and government officials, many of whom he donated to.

Bankman-Fried was even compared to Warren Buffet and many called him the white horse of crypto (TechCrunch never did, for what it’s worth).

But in early November 2022, that all changed.

FTX’s collapse

Concerns surrounding FTX’s liquidity grew after CoinDesk published a copy of Alameda’s balance sheet, showing the firm held $14.6 billion in assets and $8 billion in liabilities as of June 30, 2022.

But there was a problem: The report showed Alameda’s largest asset was $3.66 billion of “unlocked FTT” and $2.16 billion of “FTT collateral.” FTT was the token behind FTX.

The balance sheet showed that the $5.82 billion in FTT tokens that Alameda owned was 193% higher than the total FTT market cap, which was about $3 billion at the time. That means it purported to have more FTT tokens on its balance sheet than what existed in the world.

Around the same time it was exposed, the world’s largest crypto exchange, Binance, started pulling out its remaining $2.1 billion equivalent of cash in BUSD and FTT. (It had an equity position in FTX from 2019 to 2021.) This essentially triggered a bank run on FTX.

FTX and Alameda filed for Chapter 11 bankruptcy in the U.S. mid-November 2022. Bankman-Fried resigned, and John J. Ray III, the Enron turnaround veteran, was appointed its new CEO.

Bankman-Fried, however, maintained his innocence. At The New York Times’ DealBook Summit, he appeared virtually from the Bahamas, saying “I didn’t ever try to commit fraud on anyone; I was shocked by what happened this month.” In a published DM exchange with a Vox reporter, he said he regretted filing for bankruptcy and thought that “regulators make everything worse.”

SBF arrested

Bankman-Fried was arrested in December 2022 in the Bahamas, where FTX was based. He was then extradited to the U.S. to face a number of criminal charges. He was released on a $250 million bail bond, and he remained under house arrest at his parents’ home in Palo Alto. This was revoked in August after he was accused of intimidating Alameda’s former CEO, Caroline Ellison, by leaking her private diary.

Ray represented the company during a House Financial Services Committee hearing regarding FTX. When asked whether the firm had significant risk management systems, Ray said at the time that “there were virtually no internal controls and no separateness whatsoever” and added that he did not “trust a single piece of paper” in the exchange’s organization. U.S. Attorney Damian Williams called Bankman-Fried’s alleged crimes “one of the biggest financial frauds in American history,” in a press conference.

The aftermath

FTX co-founder and former CTO Gary Wang, and Alameda Research’s former CEO, Caroline Ellison, both pled guilty in December 2022 to federal criminal charges in relation to the FTX collapse. They’re also facing civil penalties from the SEC and CFTC alongside the criminal charges. Wang and Ellison plan to cooperate with prosecutors and will be major witnesses in the trial, given their close ties to Bankman-Fried, FTX and Alameda.

In January, Bankman-Fried pleaded not guilty to all counts, which include wire fraud, conspiracy to commit money laundering, and conspiracy to misuse customer funds. He could face up to 115 years in jail if convicted on all charges.

The crypto industry as a whole suffered from FTX’s collapse, which was the first of many. BlockFi filed for Chapter 11 in November 2022, as did Genesis Global Trading in January.

Where we are today

Bankman-Fried will be represented by Cohen & Gresser, and Mark Cohen, a high-profile defense attorney and former federal prosecutor, will be the lead attorney. If that name sounds familiar, it might be because he also represented Ghislain Maxwell in her sex trafficking trial related to Jeffrey Epstein. He requested an early release for Bankman-Fried but was denied.

On Tuesday, we’ll start to see how FTX’s story ends. But what’s on our mind is what happens to the investors and creditors affected by the collapse? And what happens to the billions in crypto assets tied up in legal proceedings?