Who is Investing in Fintech and Why?

Who is Investing in Fintech and Why?

CB Insights, the New York-based machine intelligence platform, has just released its Global Insights Report Q1 2019.

The report finds that in the first quarter of 2019, financial technology companies backed by venture capitalists closed 445 deals globally, raising $6.3 billion. The sheer number of deals, then, was up quarter-over-quarter by 4%, but the total funding raised was down quarter-over-quarter by 13%.

Also, for the first time in more than a year, fintech investing in Asia fell below $1 billion last quarter. It dropped, specifically, to $875 million, largely due to tighter regulatory oversight in China, and despite an increase in dealmaking in India.

The US remains the top market for VC/fintech deals. There were 170 such financings in the US in the first quarter, worth $3.3 billion.

The Top Deals of the First Quarter

The report reviews the top nine deals of the quarter. They are as follows:

  • Clover, a tech-centric health insurance carrier, raised $500 million in January, from select investors including Greenoaks Capital Management, First Round Capital, and Sequoia Capital;
  • N26, which offers digital banking services, raised $300 million in January, investors including Insight Venture Partners, GIC, and Greyhound Capital;
  • Toast, a restaurant management system, raised $250 million in March, investors including Bessemer Venture Partners, Generation Investment Management, and Lead Edge Capital;
  • States Title, a tech-enabled insurance carrier, raised $240 million in January, investors including Fifth Wall Ventures, and Foundation Capital;
  • Chime, which offers digital banking services, raised $200 million in March, investors including Coatue Management, Dragoneer, and DST;
  • Wefox, a tech-enabled insurance platform, raised $125 million in March, investors including CreditEase FinTech, Goldman Sachs, and Mubadala Ventures;
  • Confluent, an open-source data-streaming platform, raised $125 million in January, investors including Benchmark, Index Ventures, and Sequoia Capital;
  • Raisin, a wealth management marketplace, raised $114 million in March, investors including Index Ventures, Paypal, and Ribbit Capital; and
  • Acorns, a financial robo-advisor, raised $105 million in January, investors including CNBC, Blackrock, and Bain Capital Ventures.

Certain themes jump out at us from this list. For example, with the transformations underway in the health insurance world in the United States, where everyone is still adapting to the mechanics of the Obamacare system, as well as to the continued political uncertainties about its future, the application of technology to health insurance is hot. Three of our top nine occupy that space.

Challenger Banks

Another point: digital banking services are also hot. Firms such as Chime and N26, letting customers open accounts using only a cell phone app, describe themselves as “challenger banks” or “neobanks.” This is a trend that began in Europe and is only now making its way to the US. (N26 is based in Germany.)

As CB Insights puts it challenger banks are “no longer a niche in fintech.” They have by now attracted millions of customer accounts. Chime, which targets millennials, has 3 million accounts alone, and it is only the third largest in the field. The largest challenger bank is Brazil’s NU Bank, with 5 million. Then Revolut, with 4 million.

Further, the challenger bank ecosystem includes a lot of distinct species: there are the firms that cater to the debit needs of the traditionally un- or under-banked, including Revolut; and those who extend credit to the unbanked, such as NU Bank or Trigg; there are “impact” neo-banks; as well as the millennial oriented such as Chime or Lydia; and so forth.

Finally, Mubadala’s interest in Wefox is intriguing. Mubadala Ventures is a San Francisco- and Abu Dhabi-based VC operation that takes its name from an Arabic term that translates into “swap” or “swapping.” In a financial context the term suggests Shariah, a theologically founded preference for equity over debt.

Wefox at present serves more than 400,000 customers and 1,500 brokers. Most of the customers on the platform (80%) come through brokers.

Two Macro Trends

CB Insights looks at macro trends in the fintech world, including the next generation startups that use biometrics to combat identity fraud. One of these, Onfido, provides verification software for employers who must do background screening. It uses machine learning to verify presented identification documents, checking a person’s identity against international credit bureaus and watchists. Onfido’s investors include Salesforce and the SBI Group.

We will conclude with one final nugget from the report: California’s dominance within the world of US finance may be declining. California and its “Silicon Valley” has been the stuff of legends, the place where unicorns roam and can be roped. But New York is on the rise.

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