SAN FRANCISCO —
In 2009, Shamir Karkal and several colleagues struggled to raise money for a
banking startup, Simple. Most of the 70 venture capital firms they met over the
course of a year did not see the point of the idea, he said. The few that did
thought it would fail.
اضافة اعلان
By last year, things had changed. When Karkal set out to raise funding
for his new financial technology startup, Sila, which makes regulatory
compliance software, he garnered $5 million in a few months with a fraction of
the pitches. He said he was frustrated it did not happen even faster.
“I know folks in the space who raised rounds in less than one week,” he
said.
Sila is one of thousands of financial technology (fintech) startups
riding an investor frenzy driven by a growing realization that Big Finance is
ripe for a tech makeover. When the pandemic forced businesses to speed up their
usage of digital tools, including e-commerce and online banking, the demand for
what is known as fintech exploded.
Now startups with names like Blend, Brex and Dave that provide
decidedly unglamorous banking, lending and payment processing offerings are hot
tickets. That was punctuated this month when Stripe, a payments company, raised
$600 million in a financing that valued it at $95 billion, the highest ever for
a private startup in the United States.
Financial technology companies are also making a splash on the stock
market. On March 23, Robinhood, a stock trading app popular with young adults,
filed for an initial public offering. And Coinbase, a cryptocurrency startup,
is scheduled to go public in the next few weeks in what could be a $100 billion
listing.
Even tiny financial startups that have not formally introduced their
products — such as Zeller, which will offer banking services to businesses; and
Sivo, which is building lending software — have raised millions of dollars and
been valued at nine-digit sums.
In total, venture capital investors poured $44.4 billion into financial
technology startups last year, up from $1.1 billion in 2009, according to
PitchBook, which tracks private financings.
Many investors are making bold predictions that these startups will
upend big banks, established credit card providers — and in some cases, the
entire financial system.
“The banks are extremely
vulnerable” because they have not kept up with what customers expect, said Mark
Goldberg, an investor at the venture capital firm Index Ventures. He predicted
$1 trillion of market value could transfer from old guard financial
institutions to tech companies over the next two decades.
“It’s what Amazon did to offline retail,” he said. “It’s just playing
out 10 years later in fintech right now.”
The financial technology startups that are riding the boom run the
gamut. They provide services including checking accounts, mortgages, insurance,
investing, payment processing and cryptocurrencies.
Many are capitalizing on people’s long-simmering distrust of the big
banks, especially after the 2008 financial crisis. Often, the startups offer
slick and easy-to-use apps, no physical branches and low or no fees. And they
are building on people’s growing familiarity over the past decade with tech
tools and digital payments, a shift that has accelerated in the pandemic.
Just as cheap cloud computing and smartphones once enabled a wave of
new app startups, the financial technology sector has developed its own set of
building blocks, allowing new companies to spring up faster.
One of the building-block companies is Stripe. Founded in 2010, Stripe
started out by offering to process payments for small businesses and startups.
By 2018, it was worth $20 billion and had begun investing in other startups.
Stripe now processes hundreds of billions of dollars in payments a year,
has expanded to larger customers including Salesforce and Booking.com, and has
made more than 30 investments in other fintech startups.
“We are in a hypergrowth industry and within that, the company itself
is experiencing hypergrowth,” Dhivya Suryadevara, Stripe’s chief financial
officer, said in an interview.
Domm Holland, chief executive of Fast, an e-commerce checkout software
startup, said Stripe sped up his company’s progress. Customers who use Stripe
to accept online payments can then use Fast’s software for their checkout
process.
“If Stripe didn’t exist today, we would first have to build Stripe,”
Holland said. “That’s a lot of work. They’ve already done that.”
Last year, as Fast’s business grew in the pandemic, investors began
messaging Holland daily asking to invest in the company. “I have people
LinkedIn messaging and emailing, just offering, ‘Take $5 million at any
valuation you like,’” he said. “It is a bizarre world to live in.”
He ended up raising $102
million for Fast in January. Stripe was one of the main investors in the
financing.
Other companies that play similar “building block” roles in the
financial technology boom include Affirm, which offers lending and went public
this year; Shopify, which enables e-commerce transactions; and Plaid, which
helps apps connect with bank accounts.
“The infrastructure has gone to a whole other level,” said CJ
MacDonald, founder of Step, a debit card provider aimed at teenagers.
Introduced in September, Step quickly reached 1 million customers, partly from
endorsements from social media influencers like Charli D’Amelio.
In December, Step raised $50 million in funding. The company was not
looking for more money, MacDonald said. But investors started calling as soon
as the app joined the top-downloaded finance app list shortly after it was
released. The money came together in a matter of weeks, he said.
Investors are even clamoring to buy into broken deals. Plaid, which had
agreed to sell itself to Visa for $5.6 billion last year, saw the deal unravel
in January after facing antitrust scrutiny. Now the fast-growing company is in
talks with investors to raise funding at a valuation near $15 billion, said two
people with knowledge of the company who spoke on the condition they not be
identified because the discussions are confidential. The Information earlier
reported Plaid’s funding talks.
Sheel Mohnot, an investor at Better Tomorrow Ventures, said Plaid’s
sale price to Visa was viewed as “so amazing” at the time. But now, with
multiple fintech companies approaching $100 billion valuations, it looks low.
Some caution that the excitement has gotten far ahead of reality.
Robert Le, an analyst at PitchBook, pointed to the valuation of Affirm,
which has a market capitalization of $20 billion, or roughly 40 times its annual
revenue. That is significantly higher than the value that investors typically
assign to blue-chip financial services companies. American Express, for
example, trades at just three times its annual revenue.
“I think it’s a little irrational,” Le said. “Over the long haul, some
of these companies will have to come down.”
Some of the startups have already hit growing pains. Chime, a banking
startup, had a series of outages in 2019, leaving millions of customers with no
access to their money for hours. Some Coinbase customers have said they were
locked out of their accounts or experienced thefts of their money. And
Robinhood faces nearly 50 lawsuits and multiple regulatory investigations after
it halted trading for some stocks during a frenzy in “meme” stocks in January.
Leigh Drogen, chief executive of Estimize, an investment data startup,
said the hiccups, high valuations and irrational behaviors have not canceled
out all the progress in fintech.
“There are a lot of very, very real things, and then there’s some
insanity,” he said. “That happens in every boom.”
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