The Notorious B.I.G. famously said “Mo Money – Mo Problems” although they likely weren’t talking about Venture Capital investment in FinTech. The FinTech industry has not only seen an influx of venture money, but a big lift in valuations and momentum. According to CB Insights, over $13B flowed into VC-backed FinTech startups in 2015. This has significantly increased, as the same group raised $5.2 Billion across 251 deals in Q2 ‘17 alone.<
When referring to one of their recent investments in FinTech startup, Lemonade, Sequoia shared the following “It is very unusual for a company to receive $13 million in an initial round of funding,” said Haim Sadger, Partner at Sequoia Capital. “But it is rarer still to find such accomplished founders tackling such a sizable industry with such a compelling solution. We’re betting Lemonade will transform the insurance landscape beyond recognition. It is one to watch.”<
Venture capital firms are continuing to bet large sums of money on an industry geared towards uprooting traditional banking, insurance, payments, and wealth management (amongst others). It’s well known the larger VCs are looking to hit big home runs, and startups need to tackle a large total addressable market to get their attention. Fortunately FinTech addresses nearly the entire global population, making this an exciting answer to Sequoia’s popular pitch question “Why now, at this point in history?” The world is ready for this transformation and the large scale problem solving FinTech seeks to address.<
Who are the VCs leading the way?
The below chart shows FinTech specialist Digital Currency Group investing nearly 50% of their fund in FinTech and 35 deals since 2010 (from VentureDeal), and in an aggregate, both Andreesen Horowitz (also known as “A16Z”) and Sequoia have invested over $1 billion USD in FinTech companies during the same time period. Other VCs are taking notice, either in % of deals or overall deal size. A16Z and Sequoia are well regarded as some of the smartest and most accurate investors in what can be a very difficult job, with many strikeouts.<
|Investor||Deal Count since 2010||Total Amount Invested in the funding rounds the investor participated in (2015 onwards)||Total Amount Invested in FinTech companies in the funding round the investor participated in (2015 onwards)||Estimated % investment in FinTech|
|Digital Currency Group||35||$181,150,000||$86,250,000||47.6%|
Some of A16Zs most famous investments include: AirBnB, Facebook, Twitter, Ripple, and Optimizely, while some of Sequoia’s are Apple, Google, Oracle, PayPal, Stripe, YouTube. An impressive roster of major victories by any investor scale.<
Having the validation of Sequoia and A16Z should only draw more investment as the VC industry incorporates many follow the leader examples.<
The Deals are getting bigger too!
In the below chart, deal sizes have significantly increased, pouring more money, validation, talent, and marketing spend into the sector.<
The median deal-size of FinTech investments in late-stage VC in 2016 was $24.3 M, which is 2.7x the median deal-size 5 years back.<
Who is getting funding?
The following table shows some of the recent Series C & D investments into FinTech companies. Note the deal sizes are generally quite large which enables the startups to realize the market size and potential.<
|Capital Float||8/22/2017||FinTech||Series C||$45,000,000|
The Unicorns are coming to FinTech
With the tremendous success of Square’s stock price climb from it’s IPO price of $9/share in November 2015 to more than $48/share in late November, 2017, this has also given investors more confidence in liquidity and opportunity for home runs. Examples of U.S. based FinTech unicorns as of November 2017 are: Coupa, Kabbage, FundingCircle, Gusto, TransferWise, Prosper, Oscar Health, SoFi, and Stripe. This of course ignore the global FinTechs, which include Ant Financial, Jack Ma’s company, which runs Alipay, China’s biggest mobile payment network with 450 million users and 170 daily transactions.<
What is next for the industry?
Our software firm, True North focuses on FinTech and we look forward to working with our many FinTech clients on pushing the boundaries of innovation and changing the status quo of the financial industry. To drive FinTech forward, the entire ecosystem of investors, founders, government, and talented teams will be required to solve some of the world’s most complicated and interesting challenges. The next 5-10 years will continue to push the limits of the industry and further democratize the world of finance for everyone through innovative software.<