Fintech

Who wants to be a (fintech) unicorn?

Who wants to be a (fintech) unicorn? Photo: ejaugsburg, CC0 Public Domain
Written by Chris Skinner

High valuations aside, can we believe anything we read about the so-called fintech unicorn? Story by Chris Skinner.

For the past year, there’s been lots of talk about fintech unicorns – startup companies with over a billion dollar valuation launched since 2000. Jim Bruene at Finovate wrote about so many fintech unicorns in July 2015, showing the list increasing fourfold in just a year to 46 companies. This year, is it going to be less? I ask this question mainly because I think the whole idea of the fintech unicorns has been overstated.

Take TransferWise, a company that has a unicorn valuation and yet whose revenue model is just under $10m. A $1bn valuation for a $10m company? Or take SoFi. SoFi specializes in the market of Henrys (high earners not rich yet), and is expanding its portfolio by landing Henrys with huge debt burdens such that when, and if, they ever get rich, they’ll owe it all to SoFi. Does this model make sense? Obviously, it does to some because in their last funding round, they received over $1bn investment … and only wanted $200m.

Meanwhile, other firms, such as Funding Circle, are being given honors by the Queen, while the world’s biggest fintech unicorn, Lufax, is using its latest $1bn+ funding to build a bank. Wow! Or is it? Some are already predicting a landscape full of dead unicorns. I’m not one of them, but it’s quite clear that not so many will survive. How many startups can succeed after all? Not all of them.

A good example is the latest round of blockchain-hyped firms. There are hundreds vying for attention, and my eye recently caught the fact that there are large numbers of firms now growing in digital identification, digital assets and digital clearing. Just take the clearing and settlement space and you have Colu, Epiphyte, Clearmatics, Setl and more. And then, just as I mention them, you have news reports of the blockchain startups running out of steam.

It’s interesting, as a lot of this is just rumor; smoke and mirrors. For example, let’s take Blythe Masters’ hot startup Digital Asset Holdings as a case in point. I met Blythe in December and embarrassed myself by asking if she was off to Barclays. “Just rumors,” she replied, and no she isn’t. It doesn’t mean she wasn’t asked, just that she turned it down. The next rumor fires up that her company, Digital Asset Holdings, will fail as it can’t find funding (30 December 2015) only to announce $50m in funding three weeks later.

So, what’s clear to me is that you can’t trust anything you see written about anything today, including this blog. And if you think you saw a unicorn, don’t be too sure it’s the one you want to invest in.

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here. Photo: ejaugsburg, CC0 Public Domain

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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