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



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?”

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How Early Investors Can Profit From the Unicorn Explosion



Unicorns used to be a rare breed. Not anymore. 

When Aileen Lee of Cowboy Ventures first coined the term “unicorn” — referring to startups worth $1 billion or more — in 2013, she identified 39 unicorns. The vast majority were valued below $5 billion. Apart from Facebook, the average was $3.6 billion. And 27 of them were based in the San Francisco Bay Area.

What a difference eight years makes!

2021 has seen a huge explosion in the number of unicorns. According to Crunchbase, the number of new unicorns has dipped below 39 in only one month of this year. In February, a mere 26 unicorns were born. The next lowest month, January, had 42. The highest so far was March with 58.

By comparison, the best-performing month for unicorns in 2020 only reached 24 companies — most months were much lower.  

As of the end of July, there were 942 unicorns in Crunchbase’s Private Company Unicorn Board. At their current rate of growth, unicorns will exceed the 1,000 mark sometime this month. They’re collectively worth more than $3 trillion. China-based ByteDance alone was valued at $180 billion in December 2020 and is now valued at $425 billion. Stripe boasts a valuation of $95 billion. SpaceX is valued at $74 billion. And when Robinhood went public in July, its valuation hit $32 billion.

The U.S. still dominates the unicorn club, but its membership is very much global. More than 150 unicorns come from China. Other major contributors include India, the U.K., Israel, Germany and South Korea.

Deal Flow Is Better Than Ever

So how does this explosion of unicorns from all over the world affect early stage investors? 

The chances of investors landing a unicorn are much higher than they were a few years ago. If you invest in a future unicorn at the seed stage, you’re going to make loads of money. But even 1,000 unicorns is a small fraction of the total universe of startups. Snagging a unicorn is still an extraordinarily difficult and rare feat. 

But since the number of startups valued at $1 billion and up has exploded, we can assume that the number of startups valued at $500 million or more has increased just as much, if not more. After all, it’s easier to reach a level of progress deserving of a $500 million valuation than a $1 billion valuation. Similarly, if $500 million startups are surging, we can assume that $300 million startups are too. And $300 million sounds pretty good when you’re investing in early-stage startups at valuations of $15 million to $20 million. 

What’s driving these bigger valuations? More capital is chasing a finite number of deserving startups — to the point where the amount of capital is overwhelming the growing number of excelling startups.  

Deal flow across the board has never been better.

Nowadays, everybody seems to want a piece of the startup investing space. Institutional investors from hedge funds, sovereign wealth funds, corporate startup funds, private equity funds and even mutual funds and pension funds are investing more in the startup space. And they’re driving up prices. 

Institutional investors are even getting into seed-stage startups. In a way, that’s surprising. Most institutional investors have historically avoided investing that early. But founders of these early-stage companies have done the math. If they’re going to be worth 30% more than anticipated down the road for meeting their milestones, the investment opportunity has more upside than previously thought. Later stage valuations are increasing to reflect this new calculus. 

Not every unicorn is accessible for U.S. investors — crowdfunders usually can’t invest in overseas pre-IPO startups. But nonetheless, U.S. investors should consider themselves lucky. They enjoy access to the biggest universe of startups because the vast majority of unicorns are based in the U.S. Every year the percentage of non-American-founded startups that find success gets bigger, which will become a problem for retail investors down the road. But it’s not a huge problem now.

In the meantime, the bar to build a successful early-stage startup portfolio has been lowered significantly. Unicorn hunting is fun — but remains a high-stakes game. And early-stage investors don’t need them to be successful. 

As an early investor, I only go after companies with unicorn-like upsides if the investing opportunity is derisked in some manner. Otherwise, I prefer investing in startups with estimated upsides of $300 million to $800 million. Even at the lower end of that range, profits are enormous. Getting a couple of $300 million startups in your portfolio isn’t easy. But the good news is that it’s not nearly as hard as it was just a year ago.

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Egyptian ride-sharing company Swvl plans to go public in a $1.5B SPAC merger



Cairo and Dubai-based ride-sharing company Swvl plans to go public in a merger with special purpose acquisition company Queen’s Gambit Growth Capital, Swvl said Tuesday. The deal will see Swvl valued at roughly $1.5 billion.

Swvl was founded by Mostafa Kandil, Mahmoud Nouh and Ahmed Sabbah in 2017. The trio started the company as a bus-hailing service in Egypt and other ride-sharing services in emerging markets with fragmented public transportation.

Its services, mainly bus-hailing, enables users to make intra-state journeys by booking seats on buses running a fixed route. This is pocket-friendly for residents in these markets compared to single-rider options and helps reduce emissions (Swvl claims it has prevented over 240 million pounds of carbon emission since inception).

After its Egypt launch, Swvl expanded to Kenya, Pakistan, Jordan and Saudi Arabia. The company also moved its headquarters to Dubai as part of its strategy to become a global company.

Swvl offerings have expanded beyond bus-hailing services. Now, the company offers inter-city rides, car ride-sharing, and corporate services across the 10 cities it operates in across Africa and the Middle East.

Queen’s Gambit, the women-led SPAC in charge of the deal, raised $300 million in January and added $45 million via an underwriters’ overallotment option focusing on startups in clean energy, healthcare and mobility sectors.

The statement also mentions a group of investors — Agility, Luxor Capital and Zain Group — which will contribute $100 million through a private investment in public equity, or PIPE.

Per Crunchbase, Swvl has raised over $170 million. From an African perspective, Swvl features as one of the most venture-backed startups on the continent. The company has been touted to reach unicorn status in the past and will when this SPAC merger is completed.

The company will aptly trade under the ticker SWVL. The listing will make it the first Egyptian startup to go public outside Egypt and the second to go public after Fawry. It will also make the mobility company the largest African unicorn debut on any U.S.-listed exchange, beating Jumia’s debut of $1.1 billion on the NYSE. Swvl joins music-streaming platform Anghami as the second startup in the region to go public via a SPAC merger in the Middle East.

Swvl had annual gross revenue of $26 million in 2020, according to the statement, and the company expects its annual gross revenue to increase to $79 million this year and $1 billion by 2025 after expanding to 20 countries across five continents.

On why Queen’s Gambit picked Swvl for this deal, Victoria Grace, founder and CEO, said in a statement that the company fit the profile of what she was looking for: “a disruptive platform that solves complex challenges and empowers underserved populations.”

“Having established a leadership position in key emerging markets, we believe Swvl is ready to capitalize on a truly global market opportunity,” she added.

In May, TechCrunch wrote that SPACs didn’t target African startups for several reasons, including a lack of global appeal and private capital and market satisfaction. Judging by Grace’s comments, Swvl has that global appeal and is ready to venture into the public market despite being in operation for just four years.

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TechCrunch, CrunchBase founder’s Arrington Capital launches $100m Algorand blockchain fund



Digital asset management-focused Arrington Capital has launched a new $100m fund targeting development built on the Algo

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European VC soars in Q1



A stunning first quarter in venture capital funding was not restricted to the United States; Europe also had one hell of a start to the year.

According to data from Dealroom and Crunchbase News, an investor, and an analyst from PitchBook, European startups put together an impressive fundraising haul. The venture capital world kicked off its 2021 European investing cycle with enough activity to set the continent on the path that would crush yearly records.

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Inside the data, there’s lots to unpack, including which sectors of European startups stood out in terms of capital raised, rising seed and late-stage deals, and dollar volume. We’ll also need to discuss exits — the Deliveroo IPO and its various woes was not the only transaction from the period worth understanding.

As with our prior looks at AI startup fundraising and the United States’ own blistering start to the year, we’ll lean on multiple sources to ensure that we have a wide lens. And we’ll keep in mind that all venture capital data lags reality somewhat, as many deals from a particular period are not disclosed or discovered until long after they actually occurred.

In this case, it makes the numbers all the more impressive. Let’s get into the data.

The big numbers

Dealroom was first out of the gate, reporting that European startups had a record quarter in Q1 2021 back when April just got started. Its preliminary results for the first quarter indicated that startups on the continent raised €16.6 billion, or $19.9 billion at today’s exchange rates.

That total was not only a record, but what Dealroom described as double the results of Q1 2020. While we’ve become slightly inured in recent months to the venture capital market’s rapid pace and capital-rich environment, it’s worth considering for a moment, as the first quarter of last year ended, how few of us would have guessed that just a year later — as COVID-19 still harms public health and disrupts life and business — we’d see numbers like this.

The Dealroom data, however, was not all records. Round volume by the group’s estimates was down from the year-ago period, if slightly better than the last few quarters. The general move toward the later-stage and larger-round venture capital market is alive and well in Europe.

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