A highlight from Behind the Fintech Frenzy

Automatic TRANSCRIPT

Has there been such a boom. And how could it deflect will bring in my information colleagues kate clark and berber jin who have been breaking a ton of news on which are falling over themselves to fund these new companies. There's plaid ramp. Brax brax fast. What these startups lacking syllables. They make up for evaluation. Also speak to merit hummer a partner. Bain capital ventures who invest in the sector. Then in the back half of the episode more of my interview with brex cozy johan rica deuba gross who talks about how the company is emerging out of the pandemic. I what do we mean when we talk fintech. What exactly is it. Merit hummer has been investing in the sector for bain capital ventures over the past several years the definition has brought it and she says five years ago an archetypal fintech company might have been a company selling technology to bank or maybe digitally native company. Trying to be a bank itself now. It's all about what she and her colleagues call embedded fintech and the anti behind better fintech is that software. Companies will deliver financial services to consumers and businesses in the future rather than financial institutions themselves. And we've seen that proliferate and a very short period of time that is part of the change in fintech sector in which investors used to lament that there hasn't really been that many big financial exits one potential legs. It was supposed to come last january one of the sectors up and comers plaid was getting acquired for more than five billion dollars by visa. The largest credit card network basically visa wanted to expand beyond physical credit. Cards and plan provides key infrastructure. It's software connects consumers bank account to financial apps like van moen acorns but a few months ago the till died visa and plaid are terminating their five billion dollar merger that just out here. This comes after after the doj suit to block that deal. There was a major silver lining from the government blocking the acquisition. Plaid is now worth a lot more money. I asked my colleague. Kate clark who covers venture capital for the information about this in the year that's passed since visa announced its acquisition of the company which was actually over a year ago. Now january twenty twenty the market for fintech companies particularly the revenue multiples for. These valuations has changed dramatically. Kate reported in march. That plaid was raising a new round private funding which would value the company between ten and fifteen billion dollars is so a company like plaid which was valued at five billion by visa can now go out and raise at high as fifteen billion dollar valuation although we do not expect that deal to close at high as high as fifteen billion i can guarantee their investors that would be willing to pay that price for the company and what would drive evaluation increase like that in just a ago. I think what's driving. This is in part. The coronavirus pandemic in which a lot of people have become more comfortable with digital payments and companies plan stripe power consumers shopping online and using digital payments and then there are the comes the comparable companies on the public markets. Their stocks are up significantly square. The jack dorsey payments company saw its gross profits and its stock store amid the pandemic that was in part because people were depositing stimulus checks in squares cash up which allowed people to send and receive money another company called adian with processes payments for uber and ebay also grew in part because of growing online sales berber. Jin who also covers. Vc for the information has also been breaking news about fintech deals for a longtime. there wasn't much innovation in the space because they were dominated by traditional players. Like like banks for example. Berber and kate broke news earlier this week about ramp which competes with brex by selling corporate credit cards ramp was finalizing two rounds of funding. That will value the company at one point. Six billion dollars and the deal was kind of a frenzy. It was actually two rounds of funding on top of each other and one of the investors in that round was stripe and they wanted a larger stake in the company so they basically immediately turned around and lead their own investment and ramp fifty million at one point six billion valuation so so basically they invested at the same time but they invested at a higher price probably because the round before that was was done and was subscribed fully and the the company didn't need more money. Apparently they changed their mind and took the extra capital from stripe. So so that really shows. I think just how hard investors are working to get into. These deals are willing to invest at a higher price. The exact same time basically that another investors investing at a lower price one factor driving the fintech craze is stripe that privately held san francisco based payments giant. We've talked on this show. Before about how stripe with its own balance sheet to fund hot startups and stripe itself became the most valuable. Us privately held startup ever last month when it raised money at a ninety five billion dollar valuation. Another factor is robin hood. The trading app that has been embroiled in controversy for fueling a retail driven trading media but investors like media. It's good for growth and returns. Robinhood has filed to go public and these types of outcomes are driving a lot of thommo from investors. Massive tech 'financiers like tiger global management are putting money into one of robin hood's direct competitors called public dot com out of one point two billion dollar valuation. Investors aren't thinking really about. What are these young companies doing today. It's about what can they be in five years. Here's berber irish. Just talking to an investor today was when i brought up for example this sort of mass violations that tiger was offering they did a deal for example in public dot com that valued the company at over a billion dollars. And you know he was saying. It's it's quite it could. It could be a reasonable bed if you look at it. The company is going to be worth templates billion and five to ten years and he seemed to think that you know that was a reasonable outcome for for lots of companies. So i think a lot of it does have to do with revised expectations for many markets being larger than investors Once thought was possible but of course the enthusiasm like a lot of tech investing enthusiasm. These days could very well be overheated. I asked kate about. This stuff's getting pretty hot. pretty early. Our investors your talk either of you are talking to worried about valuations getting out of whack. I think short answer is yes. I think there is some people who are urging caution. I one of the issues. We've certainly talked about internally and a little bit in some of our stories is the lack of diligence that happens on these deals. Hummer from being capital has absolutely notices to startups with little more than a fantastic idea are minting big valuations away. Just recently you know there is a precede deal. They came out of. Why c with a good team and an idea that was valued at twenty million dollars. Anything though that's the type of deal construct. that's becoming more and more common and personally. I worry that the art investing is really coming under assault and valuations have become so disconnected from companies fundamentals. At some point she said those fundamentals valuations will have to converge founders. John a proven to raise money these days. But there's still several key reasons. Why all this action is happening. E commerce is booming to the financial services delivered online is booming and thanks to software new types of lenders have a better idea of how businesses are using their capital they can make smarter. Lending decisions and consumer stock trading apps have a new generation of stock pickers. At least for now. I think. A lot of hype. Infant fintech over the last few years has actually been at least so far has been deserves and we'll see if it gets out ahead of itself in the years to come earlier this week. The information held in off the

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