New Fintech funds searching for startups with revenue-generating customers and a discounted valuation
Funding is on everybody`s mind, especially for early stage companies with no significant customer base. Will this time be different than in other market downturns?
While it is true that the valuations of later stage fintechs have been hit harder on a percentage basis, more than 50% of fintechs do not have enough cash to scale (Recent Efma & Capgemini Fintech report).
Rosenblatt Securities research conducted before the crisis (Fall 2019) showed that the expected impact on Fintech valuations at various stages was affecting heavily the unicorns. For earlier stage startups the average expected impact is around 20% (1/3 of the unicorn impact). One actual example is Monzo`s valuation during its latest funding round, actually dropped 40%. However, digital banks is a very crowded space.
New funds looking for great Fintech deals
New VC funds with an exclusive or partial Fintech focus are being raised as we speak. Most of them seem to be focused on revenue generating Fintechs. The Fintech space is fairly mature in certain segments and the race is on for standalone Fintechs to scale before incumbents are able to leapfrog them by innovating themselves. Innovation within large established financial providers is challenging and there is no one way of succeeding. Others partner, others buy and integrate, and others follow a hybrid approach that includes internal innovation labs.
Four recent new funds will be looking for Fintech winners at a good price.
FIS one of the leading financial vendor providers is salivating on the opportunities that can be found in these market conditions and launched in late April a new $150million fintech fund. They already made their first investment in Flutterwave, the Nigerian payments fintech who raised $35mil Series B. FIS was familiar with Flutterwave as they had a business partnership established in January.
What is noteworthy is the interest in Nigeria and Africa in general. The SEC has also allowed Nigerian enterprise of all sizes that are more than 2yrs old to access the US crowdfunding portals.
RTP Global announced a fund, with the venture capital firm planning to deploy that cash for early-stage technology companies in areas like FinTech and Software-as-a-Service (SaaS). d RTP Global unveiled a new $650 million fund to keep investing in early-stage tech companies.
FINTOP Capital closed its second Fintech FINTOP Fund II which was oversubscribed and raised $126 million. The first fund was raised in 2016 ($50million) and brags for two exits: DealCloud sold to Intapp in 2018 (both in the institutional Saas sector of capital markets), and Solovis (a cloud based multi-asset class portfolio management, analytics and reporting technology platform, for institutional investors) which was sold to Nasdaq this March of this year.
This second fund already has holdings in Trovata (automating cash mgt), Vouchr (mobile UX in payments), myDigitalOffice (digital back office hospitality solutions), FinMkt (consumer financing), Decusoft (Saas compensation mgt).
UBS just announced a new Corporate VC fund that will invest in Fintechs which is a sector according to their research with large potential revenue growth. Their research estimates revenues to grow from $150 billion in 2018 to $500 billion in 2030.
The new fund seems to be more focused in later stage fintech and plans to invest in a dozen companies with ticket sizes between $10 million — $20.