Three questions for Canaan Partners’ Dana Warren and Brendan Dickinson
Given the stop-start nature of tariff imposition and other major macroeconomic policies, are businesses adopting a more Nostradamus-esque response to these disruptions? And, since this is Fintech Nexus after all, what happens to financial-technology providers? To parse the implications of by-the-minute major jolts to the economy, gauge the fintech sector’s adjustments, and understand its recalibrated public-launch prospects, we turned to Dana Warren and Brendan Dickinson, Venture Partner and General Partner, respectively, at Canaan Partners, an early-stage venture capital firm with 73 IPOs under its belt.
Do you think this volatility will affect the fintech sector? If so, how — and will it affect specific subsectors more acutely than others?
The most clearly exposed companies are those that are facilitating trade between targeted countries and the US — presumably, these companies will see negative impacts going forward, though it can be hard to predict. Some of the companies we thought were going to be negatively impacted by COVID in 2020 ended up seeing the strongest growth because of unexpected second- and third-order effects.
Will these economic disruptions impact the IPO timing of fintechs waiting in the wings? What other impacts, if any, do you perceive that you think are underappreciated?
Economic uncertainty is bad for any type of financial transaction — IPOs being chief among them. Another underappreciated impact are the changes being made to the CFPB. Setting aside individual perspectives on the CFPB, any loosening of regulatory regimes should allow for accelerated growth across for many fintechs. We will clearly keep a watchful eye on if that growth is in the consumer’s interest — something critically important to us.
There’s also a lot of discussion about the importance of innovation and technology in the U.S. currently across sectors, and the strength of the tech sector broadly in the public markets is undeniable. So we believe there may be some tailwinds derived from the tech sector, as well as the AI boom that these fintechs can benefit from.
How have you advised portfolio companies to navigate current market volatility, especially since President Trump initiated a trade war with major global economies? How much time have you had to prepare for this, and what sources and frameworks have you used to draft strategies?
Fintechs are generally insulated from the first-order effects of the tariff policy. That said, the second- and third- order effects could be wide ranging. At the end of the day, the mandate for our portfolio companies is to drive for strong growth in a capital-efficient manner. We expect all our companies to operate at a loss, but we want to see, especially in times of economic uncertainty, a positive ROI of each incremental dollar invested in the business.
This may seem trite, but early-stage founders and leadership teams are used to one constant: change. What’s critical for a venture during any period of uncertainty or rapid change is that the leadership team has a strong foundation and manages the fundamentals flawlessly. During this particular moment, we had significant warning that change was coming, and tariffs were a potential strategy for the new administration which gave ventures an opportunity to further focus on financial planning, cost management, and diversification. We also encourage ventures to consider impacts to their users and customers and how there may be opportunities for further innovation presented by the change.
