21

Aug

2015

Fintech Unicorns circa August 21 2015

Tags: ,

Business Insider just posted an article on the top 25 fintech unicorns, see here. Given that I like fintech and unicorns, I saw it fit to read BI’s prose. Given that many have commented on this article and list on Twitter and Linkedin, I saw it fit to write about it too.

First, some statistics.

Sector Breakdown: 9 Payments companies (36% of total), 10 are Lending companies (40% of total), 1 is in Insurance (4% of total) and 5 are in Business Services (20% of total). No asset/wealth management, no capital markets and not much in insurance. The fintech revolution has barely started.

Business Model Breakdown: 13 b2b business models (52% of total) vs 12 b2c business model (48% of total).

Silly Valley vs rest of world: 9 silly valley based companies (36% of total), 16 from the rest of the world (64% of total). Was expecting less SV as fintech is a global industry. SV still a powerhouse.

– USA vs rest of the world: 12 US companies vs 13 for the rest of the world. Even though the numbers show a tie, make no mistake, there are many more fintech startups founded and operating in Europe and APAC than in the States these days. Had the fintech revolution happened 10 years ago the number of US startups would have been overwhelming. What do you think the breakdown will be 10 years from now?

Capital Efficiency: I should calculate with revenue numbers but the article only provides valuation and capital raised and as most companies are private I will never be able to get my hands on revenue metrics. So I used valuation/capital raised to get a sense of how efficient each company is/was. Not a perfect efficiency measure and one that can fluctuate widely, but still gives a ball park estimate. Most efficient are Markit and Lufax at +20 each. Chinese companies valuations always make me nervous though. Least efficient is Sofi at 1.7 then come Mozido, Funding Circle, Xero, One97 each at +3.

B2B vs B2C capital efficiency:  At face value there seems to be a tie as there are 6 b2c companies in the bottom half of the capital efficiency ranking and 6 in the top half. However the two b2c companies in the top half are Lufax and Lending Club. I am not to confident about the valuation of a b2c Chinese company both from a macro and micro point of view and last I checked Lending Club took a beating yesterday and today in the stock market. I would be interested in efficiency metrics off of revenue and there I expect b2b companies to outshine their b2c brethren handsomely. Further, the average capital efficiency for the b2b cohort is 10 while it is +8 for the b2c cohort. Throwing out the highest and lowest efficiency ratios for both b2b and b2c cohorts (i just do not trust the Lufax valuation) the b2b average is still higher at 9 while the b2c average clocks at 7.7.  Clearly the edge goes to b2b in terms of capital efficiency.

– Total Capital Raised: $7.9 billion in total with $3.8 billion for the b2b cohort and $4.1 billion for the b2c cohort. That is equivalent to $292 million over b2b company and $342 million per b2c company. Consistent with the assumption that cost of acquisition of costumers drives capital needs up for b2c companies vs b2b companies.

– Most and least raised: Transferwise raised the least with $90 million while Sofi raised the most at $766 million. By the way, Sofi has the least capital efficiency ratio while Transferwise ranks in the top third.

– Youngest and Oldest:  Oscar is the youngest, founded in 2013. One97 is the oldest, founded in 2000. On average the b2c cohort is younger than the b2b cohort.

– Aging: 14 companies were founded prior to 2010. Of these only 4 were b2c models. 11 were founded on or after 2010 and 8 of these were b2c models. Interesting fact actually. Does this mean that as fintech took off, investors were more attracted to b2c models? The companies that were founded prior to 2010 raised a total of $4.6 billion or $329 million per company. The companies that were founded in 2010 of after raised $3.2 billion or $291 million per company. The young ones still have time to catch up I guess.

Second, my own preferences.

– B2B: Suspending disbelief, I would have invested in up to 7 out of the 13 b2b companies. More importantly, apart from 1 out of 13, I did not have the opportunity to invest in any. I started investing with Route 66 Ventures in late 2013 and most of these companies were already well on their way.

– B2C: Suspending disbelieve again, I would have invested in 2 out of the 12 b2c companies. We had the opportunity to invest in 5 out of 12 at Route 66 and we declined to pursue all.

(I guess this makes me more of a b2b fintech investor?)

– Deep seated fears: Deathly afraid of consumer leading marketplace lenders.  I believe it to be a risky bet with an uncertain future ahead – interest rate risk, liquidity risk, regulatory risk, macro economic risk, way too many risks for me to be comfortable with. Even more deathly afraid of any type of lending in China. I am sure investors made handsome returns on Lending Club, Prosper, One97, Qufenqi, Jimubox, Lufax, Sofi, Commonbond but I would not have taken these bets at the time, nor would I now.

– Ambivalent feelings: All things payments. Payments is such a difficult eco-system to crack. With hindsight, sure, everything is easy. Would I have invested in Square or iZettle for example? I wish I could say that with certainty.

– Investor Envy: Without hesitation I would have invested in Markit, Funding Circle, Adyen, FinancialForce, Credit Karma and Zenefits. Easy to call it after the fact. The combination of great management team, perfect tailwinds, right timing, fantastic business model can be found with each of these fintech unicorns. Truly, I am certain I would have invested had I had the opportunity.

– Super Mega Investor Envy: Goodness, please rewind time so I can invest in Oscar, Klarna and Stripe.

What does the BI top 25 list inspire in you? Any points I missed?

 

 

 

 

 

Facebooktwittergoogle_plusredditpinterestlinkedinmail
Tags:
,
Pascal Bouvier
pgb2008@gmail.com

Life and work experiences have given Pascal an unmatched vantage point, seeing things as both venture capitalist and aspiring entrepreneur. He currently is a Venture Partner with Santander Innoventures – Santander Group’s Global Fintech fund.

2 Comments
  • Brian Bartaby
    Posted at 12:33h, 26 August Reply

    Deep seated fears: Deathly afraid of consumer leading marketplace lenders. I believe it to be a risky bet with an uncertain future ahead – interest rate risk, liquidity risk, regulatory risk, macro economic risk, way too many risks for me to be comfortable with. Even more deathly afraid of any type of lending in China. I am sure investors made handsome returns on Lending Club, Prosper, One97, Qufenqi, Jimubox, Lufax, Sofi, Commonbond but I would not have taken these bets at the time, nor would I now.

    Is your issue with marketplace lending as a whole or just consumer / unsecured lending? Secured lending against say commercial property offers attractive risk adjusted returns.

    • Pascal Bouvier
      Posted at 22:01h, 26 August Reply

      both. unsecured consumer lending is a tough business whether you are a bank or not. marketplace lending is a tough business because you need liquidity, and as marketplace lenders are not banks they will face a higher liquidity risk.

Post A Comment