Sheel Mohnot, co-founder and general partner of Better Tomorrow Ventures, has a simple response for those who claim that investing in fintech has lost its appeal. He points out that the world of finance is enormous, accounting for about twenty percent of global GDP, and it remains insufficiently digitized. Many financial transactions are still processed manually, and Better Tomorrow Ventures, which Mohnot leads alongside NerdWallet co-founder Jake Gibson, aims to help change that.
Mohnot believes the massive opportunity for digitization is still ahead. The firm’s limited partners appear to agree, as Better Tomorrow Ventures recently raised a one hundred forty million dollar third fund. This nearly matches the one hundred fifty million dollar second fund announced in early 2022 during the zero interest-rate policy boom.
Mohnot shared that the firm actually planned to make this third fund smaller. He reflected that in 2021, the market went overboard, with every company they invested in immediately raising a follow-on round at an inflated price, which was likely unhealthy. Now that fintech enthusiasm has tempered, the firm does not require as much capital to continue supporting its best startups.
The firm also did not use the seventy-five million dollar opportunity fund raised alongside its second fund in 2022, though that capital may become useful soon. With many recent and planned IPOs in the fintech space, including companies like Chime, Klarna, Navan, and Wealthfront, there is hope that late-stage investors will become more excited about the category.
At the early stages, fintech investing has already picked up over the last year. The firm sees significant opportunities in disrupting accounting, citing a massive shortage of accountants. Mohnot believes accounting firms are turning away business, making it a perfect application for artificial intelligence. Better Tomorrow Ventures has already backed three accounting startups: Basis, which recently raised a thirty-four million dollar Series A; Layer, an embedded accounting platform for small and medium-sized businesses; and InScope, a startup that automates audited financial statement drafting.
Mohnot is a strong believer in the broad applications of AI within fintech beyond just accounting. He notes that financial services are very labor-intensive, involving underwriting, compliance, fraud detection, and customer support, and AI can perform all these functions at a lower cost.
Other notable companies in the firm’s portfolio include Coast, a payments platform for fleet and truck drivers; Unit, a banking-as-a-service startup last valued at one point two billion dollars; and Relay, an online banking and cash management platform for small businesses.
For its third fund, Better Tomorrow Ventures plans to invest in thirty to thirty-five companies, with check sizes ranging from five hundred thousand to three and a half million dollars.