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Fintech Startups Broke Apart Financial Services. Now The Sector Is Rebundling

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As fintech companies mature, many no longer aspire to be the best at one thing. That could mean not only new revenue sources for fintech companies, but also additional venture capital to startups and even a surge in M&A activity.

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One example of a hot startup that has drawn attention from a big financial services company is San Francisco-based Plaid, an early fintech startup that manages the connections between apps and banks. Earlier this year, Visa agreed to acquire Plaid for $5.3 billion.

Five years ago, that deal might not have happened. Early leading fintech brands like Lending Club, SoFi or Robinhood started out as “best-of-breeds,” essentially unbundling one aspect of financial services. Today, venture investors and leaders in the fintech space can visualize a future where such startups will move toward again rebundling services.

Unbundling was driven by a sensible bit of conventional wisdom, Ben Savage, partner at Clocktower Technology Ventures, told Crunchbase News. In the 1990s and early 2000s, banks were emerging as one-stop shops, essentially building a “supermarket of financial services,” he said.

However, many of those offerings represented a small amount of the bank’s overall business. The early wave of fintech startups settled on taking one of those bank functions and executing better.

“You can really only do one thing at a time as a startup, but if you do that really well and find product market fit, you win the opportunity to expand the features,” Savage said.

In addition, the barriers to entry were difficult: any infrastructure or function required to execute had to be built internally. Fast forward to today, and “the price of admission has come way, way down,” Savage said.

Indeed, there are now infrastructure businesses that help fintechs build in less time and with less cost, enabling them to expand their product footprint more easily. However, as it turns out, consumers eventually liked seeing all of their information in one place again and pushed fintechs to reintegrate.

“Profitability nudges you to open more product lines,” Savage said. “You see this in companies like Credit Karma, which used to do only credit checks, but now offers their own products. It is much easier to do it now, consumers expect it and it is a better economic model to offer more products.”

Credit Karma is also another example of a startup being acquired by a larger financial services company. The San Francisco-based personal finance platform is being acquired by Intuit, the financial software provider behind TurboTax and QuickBooks, for $7.1 billion, pending regulatory review.

Startup perspective

With rebundling comes an opportunity to bring in new lines of revenue, said Alex Pomeroy, co-founder and partner at AGO Partners, in an interview.

One of his portfolio companies is Aspiration, a Marina Del Rey-based fintech platform that offers a range of products oriented around conscious consumerism, including spend-and-save, investing, retirement and giving products.

“Most of the fintechs are basing themselves off of savings and checking, but we are already seeing mutual fund products, as well as credit and insurance products,” Pomeroy said.

M1 Finance is another example of a fintech trending toward rebundling. The Chicago-based company, founded in 2015, recently closed a $45 million Series C round of funding and is one of the 995 U.S. fintech companies to receive a cash infusion this year.

Investors pumped just over $17 billion into fintech startups year-to-date in 2020, according to Crunchbase research.

M1 Finance is bundling investment, borrowing and banking products into what co-founder and CEO Brian Barnes coins a “finance super app.”

When fintech companies began unbundling, the tools got better, but consumers ended up with 15 personal finance apps on their phones. Now, a lot of new fintechs are looking at their offerings and figuring out how to manage all of a person’s personal finances so that other products can be enhanced, said Barnes.

“We are not trying to be a bunch of products, but more about how each product helps the other,” Barnes said. “If we offer a checking account, we can see income coming in and be able to give you better access to borrowing. That is the rebuild—how does fintech serve all of the needs, and how to leverage it for others?”

Traditional banking revolves around relationships for which banks can sell many products to maximize lifetime value, said Chris Rothstein, co-founder and CEO of San Francisco-based sales engagement platform Groove, in an interview.

Rebundling will become a core part of workflow and a way for fintechs to leverage those relationships to then be able to refer them to other products, he said.

“It makes sense long-term,” Rothstein said in an interview. “In financial services, many people don’t want all of these organizations to have their sensitive data. Rebundling will also force incumbents to get better.”

Policy perspective

The concept of financial services bundling is driven by two U.S. laws:

“These laws prevent banks from operating outside the narrow realm of financial services, nor do they allow for companies to do banking and investing or banking and commerce at the same time,” said John Pitts, head of policy at Plaid.

Those laws don’t apply to commercial firms, which is how companies including Netflix, Google, Amazon and Apple are able to get into financial services, he said.

“These companies are big enough to do banking services and are interested in doing it,” Pitts added.

Traditionally, financial services did all of their competing and bundling based on the location of the bank branch. However, fintechs are not restrained by geography, he explained. As a result, he predicts the merging of fintech and commerce may be almost an undoing of both of those regulations, and if those were to change, rebundling will look different.

Where we go from here

However, several experts say it is too early to know the right services to rebundle or exactly what rebundling will look like.

“As we see challengers become dominant players, they will have the opportunity to experiment digitally,” Savage said. “They won’t be burdened from history and will be able to start with a blank slate.”

He also expects more innovation in the customer experience over time. That could mean niche financial challengers coming on, similar to how credit unions operate today, and offering very targeted services like a bank for yoga instructors or one for people who travel frequently.

Meanwhile, Barnes acknowledges that not every fintech company will rebundle in the same way, but if a company does well, they will most likely be the predominant system in the future.

If federal regulations are amended, Pitts expects rebundling to have no restrictions from those two acts. He points to changes on the horizon, due in part from a request for comment in June by the Office of the Comptroller of Currency on updates for banks’ digital activities.

“Banks are moving to be more like fintechs, and as fintechs rebundle services, we will see banks doing their own unbundling and re-bundling,” Pitts said. “The questions will be who is the best at meeting consumer demand, and what those bundles will look like?”

Illustration: Dom Guzman

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Source: https://news.crunchbase.com/news/fintech-startups-broke-apart-financial-services-now-the-sector-is-rebundling/

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The Briefing: RVShare raises over $100M, Google disputes charges, and more

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Here’s what you need to know today in startup and venture news, updated by the Crunchbase News staff throughout the day to keep you in the know.

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RVShare raises over $100M for RV rentals

RVShare, an online marketplace for RV rentals, reportedly raised over $100 million in a financing led by private equity firms KKR and Tritium Partners.

Akron, Ohio-based RVShare has seen sharp growth in demand amid the pandemic, as more would-be travelers seek socially distanced options for hitting the road. Founded in 2013, the company matches RV owners with prospective renters, filtering by location, price and vehicle types.

Previously, RVShare had raised $50 million in known funding, per Crunchbase data, from Tritium Partners. The company is one of several players in the RV rental space, and competes alongside Outdoorsy, a peer-to-peer RV marketplace that has raised $75 million in venture funding.

Funding news

  • BrightFarms closes on $100M: Indoor farming company BrightFarms said it secured more than $100 million in debt and new equity capital to support expansion plans. The Series E round of funding was led by Cox Enterprises, which now owns a majority stake in the company, and includes a follow-on investment from growth equity firm Catalyst Investors.
  • Anyscale inks $40MAnyscale, the Berkeley-based company behind the Ray open source project for building applications, announced $40 million in an oversubscribed Series B funding round. Existing investor NEA led the round and was joined by Andreessen Horowitz, Intel Capital and Foundation Capital. The new funding brings Anyscale’s total funding to more than $60 million.
  • Klar deposits $15M: Mexican fintech Klar closed on $15 million in Series A funding, led by Prosus Ventures, with participation from new investor International Finance Corporation and existing investors Quona Capital, Mouro Capital and Acrew. The round brings total funding raised to approximately $72 million since the company was founded in 2019. The funds are intended to grow Klar’s engineering capabilities in both its Berlin and Mexico hubs.
  • O(1) Labs rakes in $10.9M: O(1) Labs, the team behind the cryptocurrency Mina, announced $10.9 million in a strategic investment round. Co-leading the round are Bixin Ventures and Three Arrows Capital with participation from SNZ, HashKey Capital, Signum Capital, NGC Ventures, Fenbushi Capital and IOSG Ventures.
  • Blustream bags $3M: After-sale customer engagement company Blustream said it raised $3 million in seed funding for product usage data and digital transformation efforts for physical goods companies via the Blustream Product Experience Platform. York IE led the round of funding for the Worcester, Massachusetts-based company with additional support from existing investors.Pillar secures another $1.5M: Pillar, a startup that helps families protect and care for their loved ones, raised $1.5 million in a seed extension to close at $7 million, The round was led by Kleiner Perkins.

Other news

  • Google rejects DOJ antitrust arguments: In the wake of a widely anticipated U.S. Justice Department antitrust suit against Google, the search giant disputed the charges in a statement, maintaining that: “People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives.”
  • Facebook said to test Nextdoor rival: Facebook is reportedly testing a service similar to popular neighborhood-focused social Nextdoor. Called Neighborhoods, the feature reportedly suggests local neighborhood groups to join on Facebook.

Illustration: Dom Guzman

Venture investors and leaders in the fintech space can visualize a future where such startups will move toward again rebundling services.

Root Inc., the parent company of Root Insurance, launched its initial public offering and is looking at a valuation of as much as $6.34 billion.

Clover Health posted rising revenues and a narrower loss in its most recent financial results, published in advance of a planned public market debut.

Crunchbase News’ top picks of the news to stay current in the VC and startup world.

Source: https://news.crunchbase.com/news/briefing-10-21-20/

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Syte Sees $30M Series C For Product Discovery

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Online shopping has become the norm for most people in 2020, even coaxing traditional retail brands to up their presence to stay competitive. However, now that shoppers can’t see and touch products like they used to, e-commerce discovery has become a crucial element for customer acquisition and retention.

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Enter Syte, an Israel-based company that touts creating the world’s first product discovery platform that utilizes the senses, such as visual, text and voice, and then leverages visual artificial intelligence and next-generation personalization to create individualized and memorable customer experiences, Syte co-founder and CEO Ofer Fryman told Crunchbase News.

To execute on this, the company raised $30 million in Series C funding and an additional $10 million in debt. Viola Ventures led the round and was joined by LG Technology Ventures, La Maison, MizMaa Ventures and Kreos Capital, as well as existing investors Magma, Naver Corporation, Commerce Ventures, Storm Ventures, Axess Ventures, Remagine Media Ventures and KDS Media Fund.

This brings the company’s total fundraising to $71 million since its inception in 2015. That includes a $21.5 million Series B, also led by Viola, in 2019, according to Crunchbase data.

Fryman intends for the new funding to be put to work on product enhancements and geographic expansion. Syte already has an established customer base in Europe, the Middle East and Africa, and will now focus expansion in the U.S. and Asia-Pacific.

Meanwhile, Syte has grown 22 percent quarter over quarter, as well as experienced a 38 percent expansion of its customer base since the beginning of 2020.

“Since we crossed $1 million annual recurring revenue, we have been tripling revenue while also becoming more efficient,” Fryman said. “We can accelerate growth as well as build an amazing technology and solution for a business that needs it right now. We plan to grow further, and even though our SaaS metrics are excellent right now, our goal is to improve them.”

Anshul Agarwal, managing director at LG Technology Ventures, said Syte was an attractive investment due in part to its unique technology.

“They have a deep-learning system and have created a new category, product discovery that will enable online shopping in a way we never had the ability to do before,” Agarwal said. “The product market fit was also unique. We believe in the strong execution by the team and the rapid growth in SaaS. We looked at many different companies, and the SaaS metrics that Syte showed are the strongest we’ve seen in a while.”

Illustration: Li-Anne Dias

Venture investors and leaders in the fintech space can visualize a future where such startups will move toward again rebundling services.

Root Inc., the parent company of Root Insurance, launched its initial public offering and is looking at a valuation of as much as $6.34 billion.

Clover Health posted rising revenues and a narrower loss in its most recent financial results, published in advance of a planned public market debut.

Crunchbase News’ top picks of the news to stay current in the VC and startup world.

Source: https://news.crunchbase.com/news/syte-sees-30m-series-c-for-product-discovery/

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Intellimize Closes $12M Round Of New Funding

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Website optimization startup Intellimize has landed $12 million in new funding, the company announced Wednesday. 

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Intellimize automatically optimizes websites using artificial intelligence. Marketers are able to use the software to try different experiences in parallel and in real time. 

“With A/B testing, all the work is on me,” said CEO Guy Yalif in an interview with Crunchbase News. “With intelligent website optimization, the work is on the machine.”

The company uses machine learning to adjust web pages to respond to a customer’s behavior over time. When a customer goes on a company’s website, Intellimize can give the  customer’s location, time of day, previous website behavior summary, traffic source and other information so marketers can optimize the customer’s experience.

Intellimize says it delivers an average of 46 percent increase in online conversations. And more online conversations can lead to more sales and revenue.

Intellimize, which is based in San Mateo, competes with companies like Granify, accoridng to Owler. 

Addition led the round, with participation from previous investors including Homebrew, Amplify Partners, and Precursor Ventures. The new round brings Intellimize’s total funding to $22 million.

In terms of growth, Yalif said Intellimize had seen its in-target revenue grow 5x in the last year. The company counts Snowflake, Sumo Logic, Tableau, and Unilever Prestige among its customers.

The company plans on using the new funding to significantly expand its team, with a particular focus on people with machine learning expertise, Yalif said.

Intellimize last raised an $8 million Series A led by Amplify Partners in April 2019.

Illustration: Li-Anne Dias

The commerce platform helps direct-to-consumer and B2B brands establish an e-commerce platform designed for their needs.

San Francisco-based Handshake has raised an $80 million Series D led by GGV Capital. 

The SPAC phenomenon is opening the door to the kinds of companies that in recent years have not been tapping public markets.

There’s a lot that’s lost in the clamor to “do something” about the tech industry, namely the impact on smaller companies and the overall innovation…

Source: https://news.crunchbase.com/news/intellimize-closes-12m-round-of-new-funding/

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Root Seeks $6.34B Valuation In Pending IPO

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Root Inc., the parent company of Root Insurance, launched its initial public offering and is looking at a valuation of as much as $6.34 billion, TechCrunch reported.

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The Columbus-based startup has attracted approximately $528 million in venture-backed funding since the company was founded in 2015, according to Crunchbase data.

We last checked in on Root Insurance back in September 2019, when the company had raised a $350 million Series E round led by DST Global and Coatue. At the time, the company was valued at $3.65 billion.

Root is offering 24.2 million shares and targeting $22 to $25 per share and intends to list on the Nasdaq under the ticker symbol ROOT.

Illustration: Dom Guzman

The product discovery platform helps create individualized and memorable customer experiences.

Crunchbase News’ top picks of the news to stay current in the VC and startup world.

The idea behind Zest AI is to apply better math to credit underwriting.

The Black Venture Institute is designed to give Black operators and executives the tools they need for careers in venture capital and investing.

Source: https://news.crunchbase.com/news/insurtech-startup-root-launches-ipo/

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