By most accounts, financial technology (fintech) is a scorching-hot market. No one is more bullish on the sector than Goldman Sachs, which predicts that the slew of fintech companies offering online payments, crowdfunding, wealth management and lending could end up attracting up to $660 billion in revenue away from traditional financial services.
Last year, VCs and corporates made considerable progress toward realizing Goldman's projection by investing $17.4 billion in fintech companies across the globe. Chinese companies led the way by landing 28 deals worth $7.7 billion, PitchBook reports. By contrast, 650 American fintech companies only scored a combined total of $6.2 billion from investors last year — a 12.7 percent year-over-year decline.
Corporates may find an opportunity in backing promising U.S. fintech startups that are being passed over by institutions chasing returns in Asia.
Put Your Money Where Your Goals Are
So which fintech companies should you be investing in? A lot depends on your goals and needs. If you're investing for fit, putting your dollars into a proven platform is likely your best bet — even if you're getting in well after all the early returns have been gobbled up by seed-stage investors.
If it's returns you're after, getting in as close to the seed stage as possible should be your first priority. Fortunately, the U.S. market has plenty to choose from. As of this writing, AngelList tracks 2,810 FinTech companies backed by 2,227 investors.
Here's a closer look at the six most-followed independent fintech startups on AngelList, ranked from least to most popular:
While Robinhood doesn't exactly take from the rich and give to the poor, the platform does provide free stock trades to those who use it. So how does the company make money? Benefactors can pay $10 monthly for access. Otherwise, Robinhood depends on the interest and fees it earns on assets held on behalf of trading customers.
Investors like the pitch enough to have contributed $66 million to Robinhood since its founding in 2013. GV, Andreessen Horowitz and New Enterprise Associates have all committed funds, as have celebrity backers Jared Leto and Snoop Dogg.
This startup with a purpose has been serving at-risk borrowers who might otherwise opt for payday loans since November 2011. The name LendUp aims to describe the service: Those with little, poor or no credit ladder up their ability to borrow by taking on and paying back reasonable loans, earning better terms with each success.
And while some of LendUp's investors surely love its mission-driven story, at least a few of their 20 investors must've been appreciated a company whose services target the 56 percent of Americans who can't access mainstream banking services. By combining a strong misson-driven purpose with a large potential market, LendUp has earned over $111 million in venture financing so far. Andreessen Horowitz and Kleiner Perkins Caufield and Byers are among the top-tier VCs to have contributed money so far.
Founded in 2013, EquityZen members get access to mature, proven businesses before they arrive on the public market via IPO. So far, the equity crowdfunding startup says it has closed over 1,400 investments serving 55 different companies, at least two of which have gone on to liquidity events. (Nutanix went public last September, while Cisco acquired AppDyanmics in January.)
Because it's a marketplace rather a maker of products, EquityZen's investors, who have committed $3.5 million over two rounds of financing, are betting the company can achieve massive scale and produce a regular stream of fees and earnings from brokered deals.
Founded in 2011 on the premise that investors could do better and save more with automated asset management, Wealthfront today serves clients with retirement, financial planning, direct indexing and other financial products common to white shoe Wall Street firms, but it charges just 0.25 percent of assets annually — a fraction of the two percent or more professional money managers might charge. Venture investors see disruptive potential in the model.
All told, Crunchbase says 34 investors have backed Wealthfront over five rounds of financing. The result: $129.5 million in equity capital from a combination of big players like DAG Ventures, Greylock Partners and SK Ventures plus a long list of individual backers.
Much like EquityZen, DreamFunded is a platform for equity crowdfunding for startups and small businesses. DreamFunded earns its money by taking a five percent cut of the funds raised once the startup seeking equity crowdfunding reaches its investment goal. The company also claims to be first equity crowdfunding platform to be registered with the Securities and Exchange Commission (SEC) and to have secured approval from the Financial Industry Regulatory Authority (FINRA).
So far, DreamFunded's list of undisclosed backers — some of whom contributed via the crowdfunding process — have committed $1.2 million in total capital. Rising interest in equity crowdfunding as an alternative to traditional VC funding could push that total much higher in the years to come.
1. Able Lending
Founded in 2014, Able Lending has over 300 more followers than the next-most popular member of AngelList's FinTech lineup. That shouldn't come as a surprise; in a nation dominated by small businesses, Able Lending aims to be the lowest-cost provider of small business loans between $25,000 and $1 million. The idea behind it sounds alluring enough: raise a portion of funds from friends, family and others from your network, and Able Lending will get banks to pitch in.
Founders Fund and other venture investors liked the idea enough to have pitched in $12.5 million over three financing rounds. According to Crunchbase, Able's founders raised another $100 million in debt financing last September, which could help scale the business to IPO.
Your Next Move
If there's a lesson in this list, it's that the fintech revolution remains in the early stages. There is no dominant provider of e-payments, crowdfunding or data-driven lending and investing in the U.S. or anywhere else. If you're at risk of being disrupted by one the startups listed above or another like it, that's good news. You have a little bit of time to prepare of the coming disruption.
But don't just sit tight and wait. The time to prepare for the coming changes is now. Start building a corporate VC capability or partner with an investor who's already steeped in the FinTech revolution. If you don't do something now, you risk paying billions later to play catch up.
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