Fintech valuations are soaring at the late stage, and one Silicon Valley VC is warning of a bubble

trader blowing bubble

Summary List Placement

Fintech valuations are booming. 

This flourishing sector for startups is a broad church, comprising payments, financial markets, challenger banking, insurance, and lending. Its emergence is down to factors such as consumer willingness to shop and bank online, and distrust and dissatisfaction with traditional financial providers.

The number of fintech mega-deals rose in the US to a decade high last year, with 44 transactions logging $12.2 billion, according to PitchBook data. The median pre-money valuation for VC-backed, late-stage fintech companies in North America and Europe from 2019 was a record $73.8 million. That figure for last year, as of Q3 2020, was $95 million. Despite the coronavirus pandemic, fintech valuations were breaking records. 

Notable examples include stock trading app Robinhood which raised funding at an $11.2 billion valuation last year; buy now, pay later startup Klarna which raised at $10.65 billion; and Chime, a challenger bank, raised at $14.5 billion.

US fintech stages PB

One skeptic says these record valuations are not justifiable.

Businesses are being funded at potentially unrealistic multiples

Don Butler, managing director at Thomvest Ventures and a backer of big fintechs such as SoFi, LendingClub and Kabbage, says some parts of fintech look bubbly.

“From our perspective, we tend to believe that we are in an era of globalization … that is also leading to more convergence, and we tend to believe that there is indeed a sizeable bubble in many areas of fintech these days,” he told Insider. 

The outsized bets being taken by investors desperate for returns means that some businesses are being funded at massive multiples, which could be inflated.

That, Butler says, could make it harder for those businesses to raise funding in the future at a similarly high valuation. 

Read more: Digital banking is booming due to Covid but remains unprofitable. Here’s why fintech executives and investors believe ‘rebundling’ is key for fast growing challenger banks in 2021.

Not all highly valued fintechs are indication of a bubble, but some sub-sectors may be at risk

The rush by investors into late-stage fintech can be viewed in two ways. 

It may simply be the case that given a previous dearth of fintechs going public, a push from investors into late-stage businesses reflects a new desire to list consumer financial services companies.

Despite crazy 2020 IPO figures, fintech hasn’t been a major sector for listings. Notable recent IPOs include SoFi, Upstart, and Affirm.

Alternatively, investors are simply forced to put their money somewhere, placing outsized bets on late-stage businesses. “I don’t think investors are consistently looking enough at the details but are more interested in seeing these hyper dreams take off,” Ruth Wandhofer, partner at Gauss Ventures, told Insider.

Affirm, a loan provider founded by PayPal cofounder Max Levchin, soared 110% on its first day of trading

“Investing in a company like Affirm even at an inflated valuation feels like it has some meaningful return potential given the alternatives,” Butler said. “So for the surge into late-stage companies I think you’re seeing investors trying to get in ahead of the IPO pop that we are seeing real-time.”

Bubbles in fintech sub-sectors will pop

Despite 2020’s record breaking year for tech IPOs overall, public markets will still look for quality. Fintech listings which fail to excite investors could signal the bubble deflating, however, Butler added. The booming public market valuations of recent IPOs, after a record of more than $253 billion in exit value in the US last year, could slow down, causing a disconnect between public and private fintech. 

“I think we’ll see some lesser companies go public in certain categories of fintech that could in turn deflate those subsectors,” Butler added. “So given the scale in financial services, I think a bubble popping will be specific to certain sub-sectors rather than holistic across fintech.”

In particular, Butler cites areas of early fintech, such as marketplace lending, or companies that are focused on one specific product (such as SoFi in student lending), where market leaders in the space have already scaled up, making it harder for new entrants in those categories to catch up.

SEE ALSO: We asked 12 prominent European tech investors to pick out fintech startups they think will blow up in 2021. Here are the 20 they chose.

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Checkout.com was founded by a college dropout and just became Europe's most valuable startup after raising $450 million at a $15 billion valuation

Summary List PlacementPayments firm Checkout.com is now Europe’s most valuable startup after raising $450 million at a $15 billion valuation. 
It’s one of the largest recent funding rounds in Europe and makes the company the fourth most valuable privately owned fintech worldwide.
Founded by college dropout Guillaume Pousaz in 2012, Checkout.com raised Europe’s biggest ever Series A round of $230 million in May 2019, at a valuation of $2 billion. That was followed by a $150 million Series B in June last year at a $5.5 billion valuation.
Checkout.com powers the payments process of major companies like soon-to-be-public food delivery unicorn Deliveroo, fintech giant TransferWise, and Adidas.
“We had an exceptional year last year, particularly towards the end of 2020 with around $1 billion a week of e-commerce volumes,” Checkout’s founder and CEO Pousaz told Insider. “We had no plans to raise but had remained in touch with investors who have a long-term view of the business. This is going to be a generation-defining company.” 
The startup claims to have added more than 500 new enterprise clients in 2020 including Coinbase, Pizza Hut, H&M, Grab, Klarna, Farfetch, and messaging app Telegram. The company’s competitors include Stripe, last valued at $36 billion, and Dutch payment firm Adyen, which went public in 2018.
Checkout’s financial filings for the full-year 2019, parts of which have been examined by Insider, show revenue of $146.4 million, up from $74.8 million in 2018. Adjusted EBITDA was $5.47 million for the year. The firm’s full filings are not yet publicly available, and were due to be filed with the UK’s company register on 31 December. Pousaz said that the accounts were filed on time at the end of December, but could take two weeks to appear.
Its Series C was led by hedge fund giant Tiger Global Management with participation from Greenoaks Capital and existing investors amid a boom in interest in fintech startups from the private equity world. Checkout.com claims to have tripled its payment processing volume during 2020 as e-commerce boomed during the pandemic. 
The global payments market was worth just under $2 trillion in 2019, according to research from McKinsey. Checkout’s staggering valuation is almost triple the price it reached six months ago.
“We’ve never been chasing league tables and have always been very disciplined in our approach,” Pousaz added. “Our product in the hands of some of the most forward-thinking merchants in the world which is a validation in our business. Our investors understand public markets and are investing in the industries of tomorrow.”
Amid a growth in demand for fintech, high valuations are everywhere. Payments rival Stripe could seek a $100 billion valuation in its next round, Bloomberg reported. Similarly, US challenger bank Chime hit a new $14.5 billion valuation last year while buy now, pay later giant Klarna raised $650 million at a near $11 billion valuation in September 2020.
When asked about the hot IPO market and Checkout’s chances of going public, Pousaz said: “It’s certain that we will be a public company, we have public market investors on our cap table but there is no pressure on us. The reality is that our Series A was around 20 months ago so our timing is dependent on our roadmap.”SEE ALSO: Fintech startups like Revolut and Luno are seeing a boom in demand from consumers rushing to invest in cryptocurrencies amid major bitcoin interest
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Digital-lending startup Blend just nabbed $300 million from backers including Coatue and Tiger and is now valued at more than $3 billion. Here's how it's disrupting consumer banking.

Summary List PlacementWhen it comes to consumer banking, the offerings and services involved run the gamut from the most basic of checking accounts to highly-personalized home loans and specialty vehicle auto loans. Accessing them all in one place via a seamless, online user experience, however, isn’t always easy.
That’s one of the new focuses of digital-lending startup Blend.
On Wednesday, San Francisco-based Blend announced a new fundraising round that brought the company’s valuation to $3.3 billion, a near doubling of its valuation since it last raised money five months ago in August.
See more: Machine-learning powered mortgage startup Blend overshot its expectations with a $130 million fundraise. Their CFO explains how they pulled it off.
Blend works with traditional lenders — such as Wells Fargo, US Bank, and Navy Federal Credit Union — to streamline their process of offering and managing mortgages and loans via digital channels. 
The $300 million Series G round was led by Coatue Management and Tiger Global, whose past experience investing in software companies like Hinge Health and Rapyd appealed to Blend’s founder and CEO, Nima Ghamsari.
Previous investors include Canapi, who joined the company’s Series F round in August. 
“We are a software company and so I wanted to get people who understood software. This was just the right round. It was a right time for somebody like that in the late enough stage,” Ghamsari told Insider. 
“We’re excited because they’re both very long-term oriented investors,” he added.
A common system
Ghamsari said that a key part of Blend’s growth since the startup was founded in 2012 has been the increasing success of digital strategies at fintechs and challenger banks, placing pressure on traditional banks and lending companies to upgrade their online experience.
The COVID-19 pandemic, meanwhile, has only accelerated the “digital transformation banks and lenders are undergoing,” he said.
Read more: Blend, a startup that’s building a ‘one tap’ mortgage-application tool, is now jumping into the auto-loan market
Ghamsari said that the new capital will go primarily towards deepening existing customer relationships and further building out Blend’s suite of new consumer-banking tools used by banks like BMO Harris. 
“These banks are built product line by product, even fintechs are built product line by product line. We’re going to build this common platform that can underlie all those products.”
Blend said it added more than 200 employees in 2020, a 60% increase, and facilitated $1.4 trillion in mortgages through its online tools.
Mortgage roots
Even as Blend looks to develop what it calls its new end-to-end service for digital banking, it’s also remained true to its lending roots by continuing to innovate the online mortgage process.
Blend’s lending technology, specifically, is currently used by Wells Fargo – one of Blend’s first partnerships in the mortgage space – and US Bank, among others.
“We’ve gone really, really deep in the home buying and home-financing process,” Ghamsari said, including developing a new offering that tries to improve on the “closing table” stage of taking out a mortgage — when the borrower must sign page after page of paperwork and meet with their lender, an escrow agent, a real estate agent, and lawyers.  
Ghamsari also added that he believes Blends benefits from operating in the relatively confined industry of consumer banking and lending.
“One of the benefits of being in a vertical is that you have a small number of customers. We have a small number of customers that we can spend a lot of time on, and I want to spend more time on them, not less, as we become more successful,” Ghamsari said.
Read more: Smaller banks have been forced to evolve in the wake of the pandemic. Insiders explain how fintechs are playing a key role in the future plans of regional and community banks.SEE ALSO: Julian Robertson’s Tiger Management is at the center of a quarter-trillion-dollar web linking billionaires, the Pharma Bro, and a ‘Big Short’ main character
SEE ALSO: Inside the rapid rise and fall of Coatue’s quant fund: How a 23-year-old Wharton wunderkind seized power, alienated employees, and blew a $350 million opportunity
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We got an exclusive look at the pitch deck $3 billion valued healthtech startup Hinge Health used to raise $300 million

Summary List PlacementThe global digital health sector has unsurprisingly boomed amid the ravages of the coronavirus pandemic, with companies and consumers increasingly seeking out alternatives to in-person services.
Investors too are pouring more money into the space. One recent beneficiary is Hinge Health, which raised $300 million earlier in January to become the most highly valued private healthtech in the US, the company said. 
The Series D round was jointly led by private equity giants Coatue Management and Tiger Global and raised the valuation of startup to $3 billion, according to Hinge Health’s announcement.
The San Franc iso-based startup offers a digital clinic for musculoskeletal (MSK) pain and is available to more than 300 enterprise customers in the US. The company’s customer base tripled and revenue quadrupled in 2020, according to Hinge Health’s CEO Daniel Perez. 
“It was a very interesting year for us — in March every investor was concerned due to the pandemic, but we decided to stay the course,” Perez told Insider in an interview. “We knew there would be a counter revolution after a five or so week period where people weren’t answering the phone. We said, ‘If we can overcome this and execute we will win’  — and we were one of fastest growing companies in tech last year.”
The startup, founded in 2015, avoided layoffs or salary cuts and continued to hire last year. This new fundraising will help Hinge Health continue on its growth trajectory, with its current 550 headcount likely to double by the end of 2021, Perez said. The company was named as a healthtech company changing the industry recently.
Amid a crazy year for IPO listings in the US, and a likely continued surge into 2021, Hinge Health is primed for a debut on the public markets. 
“There was enormous investor interest when we opened the round — within 24 hours we had more than $400 million in commitments,” Perez added. “They [Coatue and Tiger Global] are the two best funds for a pre-IPO round, it’s very rare that they co-lead the same round.”
The two private equity firms’ involvement continues a trend of major hedge funds and private equity piling into late stage startups. 
Existing investors Atomico, Insight Partners, Quadrille, 11.2 Capital, Lead Edge Capital, Bessemer Venture Partners, and Heuristic Capital also participated in the funding round. Hinge Health has raised just over $426 million in total, according to Crunchbase.
Read more: Investors are pouring cash into mental health startups during a rough 2020. Here are 19 to watch, picked by top European VCs.
Despite the obvious incentives provided by public markets to buzzy startups, Perez claims that the company’s growth path is “laser focused” on growing its digital clinic for MSK.
“There is no pressure to IPO soon,” said Perez. “We’re hoping to be in a position to go public, or whatever, in 2022.”
To put Hinge Health’s rise into context, the company’s previous funding round (a $90 million fundraise in February 2020) valued the business at $428 million, one-sixth of the most recent valuation.
Perez said there’s still ample opportunity to grow further. “Healthcare is one-sixth of the US economy and around one-fifth of that is related to MSK,” he said. “That’s around 3% of [gross domestic product] so it’s a huge area of spend to disrupt.”
Check out Hinge Health’s pitch deck below: SEE ALSO: We asked 12 prominent European tech investors to pick out fintech startups they think will blow up in 2021. Here are the 20 they chose.

Narmi, a fintech that helps small banks up their digital game, is looking to double headcount this year after nabbing $20 million from a backer of Salesforce and Plaid

Summary List PlacementA fintech founded by two former investment bankers has big plans for 2021 — and they all revolve around helping small banks upgrade their digital offerings. 
While major players like Bank of America and JPMorgan Chase hold an outsized share of deposits across banks in the US, nearly 50% of market share is held by banks outside the nation’s 15 largest – including more than 4,500 community banks spread across the country, according to FDIC data.
These are also the financial institutions that, even before the COVID-19 pandemic began nearly a year ago, have been most hard-pressed to develop digital banking services – from remote check deposits to account openings – that can be costly to develop and require significant, long-term investment.
Narmi is a startup that’s looking to bridge that divide. The fintech offers cloud-based technology to regional and community banks that includes digital banking and account opening tools for consumers and a digital business banking service for small businesses. 
On Tuesday, New York-based Narmi announced that it had raised $20.4 million in a Series A fundraising round that was led by New Enterprise Associates, or NEA, a venture capital firm with more than $24 billion in assets that’s also invested in companies like Salesforce and Plaid. Executives from Plaid and Brex also invested in the round although their names were not disclosed.
See more: Smaller banks have been forced to evolve in the wake of the pandemic. Insiders explain how fintechs are playing a key role in the future plans of regional and community banks.
“We do think we have a very strong differentiation strategy,” Nikhil Lakhanpal, Narmi’s co-founder, told Insider, adding that the capital raise will allow Narmi to execute its key focuses as a company in 2021: developing more business banking digital tools, enhancing the user experience of regional and community bank customers, and doubling down on their open-source strategy (Narmi’s API code is publicly available online.)
“It’s a massive catalyst to our company in so many ways,” Lakhanpal continued.
Firsthand experience
Both Lakhanpal and Chris Griffin, Narmi’s other co-founder, experienced the tech challenges smaller banks can face when trying to reach customers online. While students at Georgetown, they led the Georgetown University Alumni and Student Federal Credit Union, with Lakhanpal as CEO and Griffin as CIO. 
“We ran this financial institution and we really just wanted to give our customers, our end users, a really awesome digital experience, like nothing else mattered. That was critical. And we just couldn’t do it. We looked at the vendor landscape, it’s really crowded with legacy tech. You’re paying a premium, not for a premium product, but for a larger company,” Lakhanpal said. 
After stints in the investment banking world at Citibank and Barclays, respectively, Lakhanpal and Griffin launched Narmi in 2016. The startup counts Radius Bank, the Boston-based online community bank that was acquired by LendingClub for $185 million in February 2020, and Berkshire Bank among its customers. Lakhanpal said the company doubled headcount in 2020 and is planning on doing the same this year. 
Read more: Plaid’s breakout stars: These are the 14 people heading up key projects at the $5.3 billion fintech looking to make financial data more accessible
A big backer in NEA
NEA, meanwhile, brings both capital and experience to the table, something that Lakhanpal said was particularly valuable given the venture firm’s experience in growing companies at scale.
As for NEA’s part, it has a veteran of both the e-commerce and banking world in Liz Landsman, who helped close the round. Landsman previously headed the internet, digital, and mobile teams for Citi’s North America consumer banking business, was the chief marketing officer of E-trade, and served as the president of Jet.com, the e-commerce startup that was acquired by Walmart for $3.3 billion in 2016 (NEA was also an investor in the site.)
“We were very excited when we met these guys, both because we thought they were exactly the right team, we thought the platform they built was thoughtful and technically strong, but also coming out of those unique insights of having lived on the other side of the table,” Landsman told Insider.SEE ALSO: Citi just announced a leadership reshuffle in its consumer bank as new head Anand Selva takes the reins, and the promotions point to a big digital push
SEE ALSO: Digital-lending startup Blend just nabbed $300 million from backers including Coatue and Tiger and is now valued at more than $3 billion. Here’s how it’s disrupting consumer banking.
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