Bloomberg In mythology, a unicorn considered auspicious. In fintech world, they might be increasingly ill-fated.
Striving to achieve a valuation of $1billion or more may no longer be in a startup's best interest, according to recent valuation trends and the venture capitalists who invest in the space.Fintech firms in particular are posing a headache for investors as rising valuations create a limbo-like state in which startups become too pricey for larger firms to buy, but don't have business models that are scalable enough for a debut in the public markets.
"What you don't want to do is get into sort of this half pregnant phase when you're past where you're digestible but not clearly on the trajectory for long term, self sufficiency," said Sean Park, co-founder of venture capital firm Anthemis Group.
Funding data lends credence to these concerns, with research firm CB Insights showing second-quarter funding to venture capital-backed finch companies dropping 49% on a quarterly basis. High-profile troubles at LendingClub, which debuted at a hefty $5.4 billion valuation in late 2015 but has since sunk to $2.1 billion, have also increased investor nervousness around the space.
This lukewarm sentiment stands in stark contrast to last year's enthusiasm about the fintech space, as investors sought to take on the outdated technology of big banks and other financial firms as well as the new set of regulations in the aftermath of the financial crisis.
To date, CB Insights' data also shows that the biggest acquisitions in the space have been Monsanto's 2013 purchase of agricultural insurance startup The Climate for $1.1 billion, Singapore Telecom's 2015 acquisition of payment security startup Trustwave and EBay's deal to buy payments platform Braintree for $800 million in 2013.
Another such deal was Northwestern Mutual's 2015 acquisition of LearnVest, an online financial planner, for what sources say was over $250 million but less than the $1 billion unicorn mark.
Acquisitions for fintech startups saw a big bump in 2015, but things have tapered off this year.
One scenario that comes up when asking who might be able to acquire some of the startups with higher valuations is the possibility of companies outside of the finance space stepping in. While firms like Apple and Amazon.com have sizable war chests of cash, they may be held back.
That may leave the unattractive option of being sold for a lower valuation.
Going public isn't as attractive as it used to be. Of three prominent IPOs in the space, only one is trading above its IPO price. LendingClub and On Deck Capital are significantly below where they debuted, while shares of Square are now above that price despite a volatile few months.
Striving to achieve a valuation of $1billion or more may no longer be in a startup's best interest, according to recent valuation trends and the venture capitalists who invest in the space.Fintech firms in particular are posing a headache for investors as rising valuations create a limbo-like state in which startups become too pricey for larger firms to buy, but don't have business models that are scalable enough for a debut in the public markets.
"What you don't want to do is get into sort of this half pregnant phase when you're past where you're digestible but not clearly on the trajectory for long term, self sufficiency," said Sean Park, co-founder of venture capital firm Anthemis Group.
Funding data lends credence to these concerns, with research firm CB Insights showing second-quarter funding to venture capital-backed finch companies dropping 49% on a quarterly basis. High-profile troubles at LendingClub, which debuted at a hefty $5.4 billion valuation in late 2015 but has since sunk to $2.1 billion, have also increased investor nervousness around the space.
This lukewarm sentiment stands in stark contrast to last year's enthusiasm about the fintech space, as investors sought to take on the outdated technology of big banks and other financial firms as well as the new set of regulations in the aftermath of the financial crisis.
To date, CB Insights' data also shows that the biggest acquisitions in the space have been Monsanto's 2013 purchase of agricultural insurance startup The Climate for $1.1 billion, Singapore Telecom's 2015 acquisition of payment security startup Trustwave and EBay's deal to buy payments platform Braintree for $800 million in 2013.
Another such deal was Northwestern Mutual's 2015 acquisition of LearnVest, an online financial planner, for what sources say was over $250 million but less than the $1 billion unicorn mark.
Acquisitions for fintech startups saw a big bump in 2015, but things have tapered off this year.
One scenario that comes up when asking who might be able to acquire some of the startups with higher valuations is the possibility of companies outside of the finance space stepping in. While firms like Apple and Amazon.com have sizable war chests of cash, they may be held back.
That may leave the unattractive option of being sold for a lower valuation.
Going public isn't as attractive as it used to be. Of three prominent IPOs in the space, only one is trading above its IPO price. LendingClub and On Deck Capital are significantly below where they debuted, while shares of Square are now above that price despite a volatile few months.
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