Wall Street to Exiting Fintechs: Show Us the Profits

What does the fintech landscape look like for startups in 2020? Among all the forecasts and predictions we’ve been reading and re-reading, is reporting from the Wall Street Journal that suggests that fintech startups seeking successful exits may face tougher challenges in 2020 than in 2019.

As the Journal’s Yuliya Chernova reports, in 2019, only three U.S.-based, VC-backed, fintech startups went public: Bill.com, Oportum, and Sezzle – two of which are Finovate alums. Even so, this tops the previous year’s total of two such firms: EverQuote and Green Sky.

“Venture investors value startups on growth, but Wall Street wants to see profits,” Chernova begins. She goes on to note how observers and analysts alike are citing the failure of WeWork and the stock struggles of newly-public companies like Uber and Lyft as indications that the affection – and capital – that VCs poured into these tech innovators may not be shared by an increasingly cynical Wall Street investing community.

As Finovate Senior Research Analyst Julie Muhn noted in a post titled “M&A is the New IPO,” last summer, there are a wealth of reasons why fintechs have found successful exits more challenging at this end of the decade. She wrote that between the availability of VC funding, and M&A opportunities on the one hand, and the cost and “bad track record” of fintech IPOs on the other, a growing number of fintechs are figuring out that it is often better to saddle up with a fellow traveler than to try and “go it alone” in the public markets.

Writing in the Digital Banking Report, publisher Jim Marous summed it up: “(W)hy would successful fintechs, who appear to have a bottomless pit of funding at their disposal, subject themselves to the massive scrutiny that comes from going public? Fintech firms don’t see a slowdown of the funding fire hose and have no desire to lose control of their vision.”

Just to get a sense of the flow from that “funding fire hose,” CB Insights reported in December that fintech startups last year raked in more than $24 billion in funding through Q3 of 2019. This represents a gain of 500% since 2014. The firm’s Global Fintech Report Q3 2019, highlights the record-setting fundraising by Southeast Asian fintechs, and notes that the $12.9 billion raised by U.S. fintechs through Q3 2019 had already topped the previous year’s full-year tally of $12.5 billion. European fintechs similarly outperformed, bringing in $5.1 billion in VC funding through Q3 2019 compared to $3.8 billion in all of 2018.

And for those who feel as if this fintech funding flow is evidence of an unsustainable bubble rather than healthy – if not vigorous – growth, fintech analyst and Forbes senior contributor Ron Shevlin suggests looking closer.

“Ignore the pessimistic view,” he wrote. “Dismissing opportunities for further fintech investment is short-sighted … The margin opportunity in banking today isn’t necessarily coming up with a ‘better’ bank, but instead, helping to improve banks profitability. Opportunities for fintech startups abound within banks.”‘

For a look at the recent capital-raising accomplishments of our own Finovate alums, check out our year-end feature, Finovate Alums Raise More than $3 Billion in 2019.

Updated: Finovate Alums Raise More Than Three Billion in 2019; $876 Million in Q4

Updated 12/20/2019: Finovate alums raised more than $876 million in the fourth quarter of 2019. The amount takes the total raised by Finovate alums this year to more than three billion. It is both the second year in a row our alums have topped this milestone, and the biggest Q4 fundraising for Finovate alums to date.

Previous Annual Comparisons

The fourth quarter of 2019 is also the fourth Q4 in a row in which alum funding has climbed above the $500 million mark.

Previous Quarterly Comparisons

  • Q4 2018: More than $800 million raised by 19 alums
  • Q4 2017: More than $730 million raised by 23 alums
  • Q4 2016: More than $700 million raised by 26 alums
  • Q4 2015: More than $302 million raised by 28 alums

The top equity investment of the quarter was the $200 million raised by Ripple, followed by the $182 million raised by Zopa and the $102.5 million raised by BlueVine the previous month. Given the relatively small number of fundings this quarter, it is little surprise to find that our top ten equity investments for Q4 make up the vast majority of the reported spending total (note that the sums involved in two of our fourteen fourth quarter investments were undisclosed).

Top Equity Investments

  • Ripple: $200 million
  • Zopa: $182 million
  • BlueVine: $102.5 million
  • nCino: $80 million
  • Spreedly: $75 million
  • Passport: $65 million
  • SheerID: $64 million
  • Eigen Technologies: $37 million
  • Aerospike: $32 million
  • Kreditech: $24 million

Here is our detailed alum funding report for Q4 2019.

October 2019: More than $104 million raised by four alums

  • Kreditech: $24 million – post
  • nCino: $80 million – post
  • OurCrowd: undisclosed – post
  • Paper.id: undisclosed – post

November 2019: More than $311 raised by six alums

  • Aerospike: $32 million – post
  • BlueVine: $102.5 million – post
  • Eigen Technologies: $37 million – post
  • SheerID: $64 million – post
  • Spreedly: $75 million – post
  • Pinkaloo: $1.25 million – post

December 2019: More than $461 million raised by four alums

  • FintechOS: $14 million – post
  • Passport: $65 million – post
  • Ripple: $200 million – post
  • Zopa: $182 million – post

If you are a Finovate alum that raised money in the fourth quarter of 2019, and do not see your company listed, please drop us a note at research@finovate.com. We would love to share the good news! Funding received prior to becoming an alum not included.

Passport Raises $65 Million for Mobile Payment for Parking

Mobile payments for parking company Passport just landed $65 million in funding, bringing its total raised to over $125 million.

The Series D round saw participation from Rho Capital Partners, H.I.G. Growth Partners, and ThornTree Capital Partners. Habib Kairouz from Rho Capital Partners and Scott Hilleboe from H.I.G. will join Passport’s board of directors.

The funding will be used enhance Passport’s software platform and expand its digital parking ecosystem.

Founded in 2010, Passport offers mobile payment solutions for parking, transit, permits, and tolling. The company’s solutions serve more than 1,000 clients and have been adopted by more than 450 agencies in over 5,000 locations worldwide, including Chicago, London, Toronto, Boston, Vancouver, Portland, Montreal, and Miami. To date, Passport has processed more than $1.5 billion, processing 100+ million transactions each year.

“We envision a world where mobility is seamless,” said Bob Youakim, Passport co-founder and CEO. “To bring this vision to life, we are creating an open ecosystem where any entity – a connected or autonomous vehicle, a mapping app, or a parking app – can leverage our transactional infrastructure to facilitate digital parking payments.”

At FinovateEurope 2016, Passport demoed its Mobile Ticketing for Transit solution. 

This year, Passport launched a pilot for micro-mobility companies, including scooter fleet company Spin. In August, the company moved on to phase two of the project to enable cities to charge scooter companies for parking. The city of Charlotte will move forward with its pilot and the company anticipates that other cities will follow.

FintechOS Locks in $14 Million in Growth Funding

Growth, growth, and more growth is the goal of FintechOS as the company announces receiving a new investment of $14 million (€12.7 million). The open source, digital banking solution provider, which made its Finovate debut last year at FinovateEurope, will use the funding to fuel its expansion to both the U.S. and South East Asia, as well as continue its growth in Europe. The capital will also help the company invest further in the development of more pre-built apps and solutions to enable FIs to offer better experiences for their customers.

“Our disruptive approach is customer, not technology driven,” company co-founder and CEO Teodor Blidarus said. “We created FintechOS to transform the financial industry, empowering banks and insurance companies to act and react faster and to create a smarter, slicker customer experience. As a result, hyper-personalized services and elevated customer experiences are now available almost plug and play.”

The Series A round was led by Earlybird’s Digital East Fund and OTB Ventures. Also participating were existing investors Gapminder Ventures and Launchub. The new funding takes FintechOS’s total capital to $16 million.

FintechOS enables banks and insurance companies to offer personalized, data-driven digital solutions to their customers in weeks rather than months or years. Via cloud SaaS or on-premise deployment, FintechOS offers 150+ integrated data sources out of the box and more than 20 automated financial processes to support AI-enabled functions like KYC, Customer 360, pricing, and risk analytics. Firms can also use FintechOS to access a marketplace of 50+ open source, prebuilt apps for key processes ranging from client onboarding and lending to pensions and wealth management.

“FintechOS’s technology is transformational in its ability to provide true end-to-end digital automation for all services and products that banks and insurance companies offer,” OTB Ventures General Partner Adam Niewinski said. “This new technology is inexpensive and versatile, ultimately enabling massive cost savings and growth stimulators for financial institutions.”

With clients in more than 20 countries and three continents, FinechOS was founded in 2017 and has offices in London, Amsterdam, Vienna, Copenhagen, and Bucharest. The company reported annual recurring revenue growth of 4.5x this year.

Zopa Raises $182 Million En Route to Full Bank Launch

While rumors have been circulating for days, Zopa confirmed today that it has raised $182 million (£140 million) in its largest fundraising to date. The capital comes from IAG Silverstripe, the investment division of IAG Capital, and will, in the words of Zopa CEO Jaidev Janardana, enable the P2P lending pioneer to fulfill the regulatory capital requirements and lift restrictions on its banking license.

“This new funding means we have concluded the fundraising phase of our bank mobilization,” Janardana said. “Definitive agreements to provide the funding have been finalized and are subject to final approvals including regulatory change of control.”

IAG Silverstripe has been an investor in Zopa since the fall of 2018, and holds a minority stake in the company. Zopa noted that its bank will operate along with its current P2P financing business (Zopa Limited) as part of the larger Zopa Group.

The funding for Zopa arrives at an opportune time for the company, which will celebrate its 15th anniversary next year. Granted an “Authorisation with Restriction” by U.K’s Financial Conduct Authority on December 4, 2018, Zopa had twelve months to meet the capital requirements that would enable the company to go ahead with a full launch. Even as the deadline drew near last week, Zopa representatives expressed confidence in the company’s ability to raise the necessary capital.

“We continue to hold our bank license with restrictions and are working closely with the regulators to gain our full license,” Janardana explained. “We are excited that, once approved, Zopa will be able to launch its bank alongside its peer-to-peer business and offer a broader set of products to our customers.”

One of Finovate’s earliest alums, the company demonstrated its P2P lending platform at FinovateSpring 2008, billing itself as the “world’s first social finance company,” In the years since its founding in 2005, Zopa has lent 5 billion pounds in unsecured personal loans to customers in the U.K. Headquartered in both New York and London, the company launched a new savings solution last month that offers a fixed-term account with 4% interest as part of its entry into the world of banking. In October, Zopa introduced Borrowing Power, a new offering that uses AI to help customers see what determines their personal borrowing power.

Pinkaloo Raises $1.25 Million for its Philanthropic Fintech Platform

Pinkaloo revealed this week it has raised $1.25 million in funding for its white label giving platform. Newly-minted Squadra led the round, marking the Baltimore-based venture capital fund’s second-ever investment.

Existing investors and new angel investors also contributed to the round, which brings Pinkaloo’s total funding to $1.8 million when combined with last year’s $550k seed round. The company will use today’s investment to support ongoing pilots with current bank partners, continue product investment, and grow its ADP Marketplace channel partnership to support the workplace version of its giving solution.

Pinkaloo’s Modern Giving solution, which CEO Gideon Taub showcased in a demo that won Best of Show at FinovateFall earlier this year, is a white-label solution that helps banks and credit unions facilitate charitable giving options for their accountholders. Through Modern Giving, users can round up their card purchases to the nearest dollar and donate their spare change, convert rewards points into charitable dollars, and invite friends and family to chip in to crowdfunding campaigns.

“This funding, along with the tractions that we are seeing with banks and the recognition from our Finovate Best of Show Award demonstrate that our product is helping companies drive their business forward,” said Taub. “We’re excited to be able to continue on our mission of helping clients build deeper relationships with their customers, employees, and communities.”

Pinkaloo’s platform echoes a larger philanthropic trend, spawned by end users’ increased interest in charitable giving. Recently, fintechs such as Meniga, Revolut, and Betterment have all launched programs to facilitate donations to humanitarian causes. As a standalone donation facilitation platform, Pinkaloo can help traditional financial institutions compete with fintechs on this level.

Founded in 2017, Pinkaloo has facilitated hundreds of thousands of dollars in charitable giving for the end users of its dozens of clients.

More Than $1 Billion Raised by 21 Alums in Q3 2019

Finovate alums raised $1.1 billion in funding in the third quarter of 2019. The quarterly total represents a significant rebound over last year’s Q3 sum and is reminiscent of the third quarters from 2017 and 2015 in topping the $1 billion mark.

Previous Quarterly Comparisons

  • Q3 2018: More than $400 million raised by 19 alums
  • Q3 2017: More than $1 billion raised by 31 alums
  • Q3 2016: More than $500 million raised by 30 alums
  • Q3 2015: More than $1 billion raised by 40 alums

As our list of the quarter’s top equity investments below reveals, the $460 million fundraising from Klarna in August represents a significant amount of this year’s Q3 total. The investment, led by Dragoneer Investment Group, gave the Swedish ecommerce innovator a valuation of $5.5 billion and the title of the largest private fintech in Europe.

Also noteworthy was the $200 million raised by San Francisco, California-based payroll, benefits, and HR platform Gusto. Along with a pair of new participants Fidelity and Generation Investment Management, Gusto’s investors boosted the company’s valuation to $3.8 billion in the third quarter. There must be something special about Q3 and Gusto; the company’s previous $140 million in funding led the quarter’s top investments last year.

Top Ten Equity Investments for Q3 2019

  • Klarna: $460 million
  • Gusto: $200 million
  • Trulioo: $53 million
  • Credit Sesame: $43 million
  • Numbrs: $40 million
  • HackerOne: $35.4 million
  • Flybits: $35 million
  • Sezzle: $30 million (IPO)
  • Scalable Capital: $28 million
  • Kyndi: $20 million

Here is our detailed alum funding report for Q3 2019.

July 2019: More than $354 million raised by 10 alums

August 2019: More than $554 million raised by six alums

September 2019: More than $148 million raised by five alums

If you are a Finovate alum that raised money in the third quarter of 2019, and do not see your company listed, please drop us a note at research@finovate.com. We would love to share the good news! Funding received prior to becoming an alum not included.

BlueVine Raises $102.5 Million in New Funding

In a Series F round led by ION Crossover Partners, small business banking and financing firm BlueVine has raised $102.5 million in new funding. The investment takes the company’s total equity financing to more than $692 million, and will help the Redwood, California-based fintech scale its end-to-end banking platform, BlueVine Business Banking.

BlueVine will also use the capital to develop integrations with the company’s financing offerings, such as its line of credit, invoice factoring, and term loan products. The investment will support the hiring of additional talent for the company’s engineering, product, and revenue teams, as well.

“This funding further validates our mission and will help democratize true business-grade banking for small businesses who have been underserved for so long,” BlueVine CEO and co-founder Eyal Lifshitz said. He highlighted the company’s BlueVine Business Checking Account, introducedlast month, which offers small businesses an intuitive financial management dashboard and a debit Mastercard, as well as 1% interest on balances and no monthly fees.

“The recent launch of BlueVine Checking demonstrates our commitment to revolutionize banking for small business owners with a full suite of services designed specifically to meet their unique needs,” Lifshitz said.

This week’s funding featured a sizable number of participants, including all of BlueVine’s current investors, as well as new investors MUFG Innovation Partners, O.G. Tech – Eyal Ofer’s VC, Vintage Investment Partners, ION Group, Maor Investments and other private investors. ION Crossover Partners’ Jonathan Kolodny praised the BlueVine for its “track record of success” and the variety of financing solutions it offers small businesses.

“We’ve been following the company closely since its early days,” Kolodny said, “and have witnessed the demand, and frankly the economic need, for BlueVine’s banking services.” He added that BlueVine was poised to “change the way small businesses manage their financial needs today and in the future.”

BlueVine demonstrated its small business financing solutions at FinovateFall 2014. More recently, the company hired former PayPal executive Brad Brodigan as its Chief Commercial Officer, and appointed former Xero VP Herman Man as Chief Product Officer. Over the course of the year, BlueVine has teamed up with a variety of institutions ranging from its collaboration with GovQuote to its partnership with recruitment industry solution provider Bullhorn.

Founded in 2013, BlueVine earned recognition from Growjo this fall as one of the fastest growing startups in California. Since inception, the company has provided more than 20,000 small business owners with access to more than $2.5 billion in financing.

Aerospike Raises $32 Million for NoSQL Data Platform

NoSQL data solutions firm Aerospike received $32 million in Series D funding today. The round is the company’s largest investment to date and brings Aerospike’s total funding to $78 million.

Triangle Peak Partners led the round, followed by existing investors NewView Capital Partners, Alsop Louie Partners, and Eastward Capital Partners. Triangle Peak Partners Co-founding Partner Dain DeGroff and NewView Capital Operating Partner Tim Connor will join Aerospike’s Board of Directors.

Aerospike will use the funds to expand its geographic presence into Asia Pacific, develop additional data infrastructure integrations, and grow partnerships. There is no updated valuation for the company, which was valued at $90.8 million in 2017.

“Companies are on a journey to convert unprecedented amounts of data into intelligence and push it from the core to the edge and gain a competitive advantage,” said John Dillon, Aerospike CEO. “Aerospike is the critical real-time data platform in a new stack of technologies underpinning this sea change, and our footprint continues to aggressively expand within enterprises as real-time transactions and analytics become more pervasive and mainstream.”

Founded in 2009, Aerospike delivers a NoSQL database for a range of industries, including advertising, ecommerce, financial services, and telecommunications. The technology stores petabytes of data that can be instantly accessed for real time decisioning.

The company, which counts Adobe, Wayfair, and Verizon Media as clients, has been growing at a rate of more than 50% year-over-year and has maintained a 95% customer retention rate for more than five years.

Aerospike is a five-time participant in our developers conference, having most recently presented at FinDEVr London 2017. During the presentation the company’s CTO and Cofounder, Brian Bulkowski, talked about rapid application design in financial services.

Bill.com Preps for $100M IPO

Intelligent business payments platform Bill.com aims to raise $100 million in an initial public offering (IPO), according to a recent filing with the US Securities and Exchange Commission (SEC), reports Ruby Hinchliffe of Fintech Futures, Finovate’s sister publication.

Underwriters listed for Bill.com’s IPO include Goldman Sachs, Bank of America (BofA) Securities, Jefferies and William Blair. Pricing terms have not yet been shared publicly.

The fintech provides cloud-based software that simplifies, digitizes, and automates back-office financial processes for small and mid-sized businesses (SMB). Bill.com has customers including company calling service Dialpad, benefits and human resource manager and fellow Finovate alum Gusto, and local professional search engine Thumbtack.

With $347.1 million already in the bank according to Crunchbase, the 2006-founded company has gathered investors such as MasterCard, Silicon Valley Bank (SVB) and BofA.

Talking about how the procure-to-pay landscape is converging, Mercator Advisory Group’s commercial and enterprise payments director Steve Murphy said: “That’s led technology companies such as Bill.com to add virtual cards to automate accounts payable for small businesses through partnerships with Amex and Mastercard.”

Set up by PayCycle’s co-founder René Lacerte, Bill.com now has more than three million members and processes $60 billion in yearly payments, according to its announcement in April 2019 following its most recent funding round of $80 million.

Bill.com demonstrated its technology at FinovateSpring 2012. More recently, the company launched a new suite of solutions for midmarket companies to help them automate their AR/AP processes to boost efficiency. The Palo Alto, California-based company was founded in 2006.

Spreedly Raises $75 Million in Growth Funding

Online and mobile payments enabler Spreedly has picked up a $75 million investment from Spectrum Equity. The growth funding will help the Durham, North Carolina-based company both accelerate product development and support its international expansion. Spreedly’s total funding now stands at just over $81 million.

“Our platform helps customers unlock their online and mobile revenue streams,” Spreedly CEO Justin Benson explained. “With this investment from Spectrum Equity, we are positioned to extend our leadership globally, in particular to leverage our momentum in Latin America. We’re excited to bring Spectrum’s experience working with other high growth FinTech and commerce platforms to bear as we execute on our growth plans.”

Spreedly provides a payments infrastructure that leverages a single API to enable businesses to grow their online and mobile revenues. The company’s PCI compliant vault securely stores card data for customers like Cabify and SeatGeek who use tokenized card data to optimize nearly $14 billion in transaction volume each year.

Managing Director at Spectrum Equity Adam Margolin praised Spreedly as “uniquely positioned” to help businesses meet the challenges of online and mobile payments. “With minimal prior funding, Spreedly has grown rapidly and today powers nearly one million transactions daily, 108% more than the year before, on behalf of its customers,” Margolin said.

Benson shared some additional thoughts on what the investment meant for the company at the Spreedly blog. And for those curious about Spreedly’s path from founding concept to contemporary success story, Benson’s reflections are especially worth reading. He concludes his remarks by saying:

“Ultimately, for you our customer, all this really means is that we’re more effectively resourced today to execute upon our ambitious product roadmap. We have more financial and intellectual capital at our disposal to build the best payment platform for merchants that we can. Thanks for your support and here’s to the next big chapter.”

Spreedly demonstrated its Networked Commerce solution at FinovateFall 2018. Networked Commerce enables businesses to connect payment systems to partners for superior scale, helps merchants process multiple-vendor transactions, and empowers consumers to make purchases through the same network – web, mobile, or voice – where they initially encounter a good or service.

This September, the company unveiled Spreedly 3DS2 to help execute 3DS2-compliant transactions across multi-gateway environments. The previous month, Spreedly – in partnership with Webio – won the 2019 Innovation Lab Award at the Payments Ed Forum. This spring, Spreedly was featured in WRAL Tech Wire’s look at local technology companies.

NLP Innovator Eigen Technologies Closes $37 Million Series B

In a round co-led by Lakestar and Dawn Capital, natural language processing technology provider Eigen Technologies has raised $37 million (£29 million) in new capital. The investment, which also featured participation from Temasek and Goldman Sachs Growth Equity, takes the London-based company’s total funding to $55 million (£43 million).

Eigen plans to spend the funds to accelerate growth, including investments in technical and commercial talent. The company will also strengthen its transatlantic profile by basing additional senior management in New York.

“When we founded Eigen five years ago, I wanted to build a research-led transatlantic business,” Liu said in a statement. “Since the Series A, we have made great progress by massively scaling the company, expanding our client base, and integrating cutting-edge machine learning techniques into our NLP product.” Liu added that in this time Eigen has more than doubled the size of its workforce, grown recurring revenues by 6x, and expanded its customer base to now include more than 25% of the global systematically important banks (G-SIBs) in the world.

The funding announcement comes just a week after the release of Eigen 3.0. Eigen 3.0 extracts data 2x to 5x faster and features a new UI that accelerates the training process by 30%. The company noted that the platform will better enable it to serve both its traditional big bank customer base, as well as new customers among hedge funds and asset managers.

“Our customers asked us for three things in Eigen 3.0: a superuser workflow, improved performance for large teams working simultaneously, and easier document handling,” said Eigen Chief Product Officer Dr. Ashley Fidler, who joined the company in August. “Eigen 3.0 delivers all these improvements and more.”

Eigen Technologies demonstrated its platform at FinovateFall earlier this year. At the conference, Dr. Liu showed how Eigen’s flexible natural language processing solution automatically and accurately extracts data from a wide range of document types at scale. The technology can be integrated into customer workflows, and leverages machine learning algorithms to recognize patterns in text data.

Founded in 2014, Eigen’s clients include Goldman Sachs, Hiscox, Allen & Overy, and ING. The company won the Financial Times Intelligent Business Award for Repapering Technology in October and was named to the FinTech50 2019 in September. Eigen Technologies began the year earning recognition from CB Insights, which featured the company in its 2019 AI 100 roster of the Most Innovative Artificial Intelligence Startups.