1 big thing: Binance exits Russia

Illustration of a crypto coin against the Russian flag.

AssuredPartners reportedly weighing IPO, sale

2. The BFD: Insurance brokerage on the block

Illustration of advertisement on a telephone pole with ripped off tabs. The ad has “For Sale IPO"

3. Credit score

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4. Deals!

5. It's personnel

Situational awareness: Financial crime compliance cost financial institutions an estimated $206 billion last year, according to Lexis Nexis research.

 ⚾ @Ryan is so ready for Red October. Let's go, Phils! (George remembers when Boston teams were on this kind of roll...)

Thanks to George Moriarty and Rob Reinalda for today's edits.

And thanks to you for reading. Please tell your fintech friends about this newsletter. They can sign up here.

Fintech Deals

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Solaris seeking €100 million

1 big thing: Solaris' struggle

Illustration of a nervous piggy bank with a sweat drop on its face.

2. The BFD: Financing cross-border trade

Illustration of hands reaching out but not shaking over a map of the U.S./Mexico border

3. Varo's new payments service

Illustration of a $100 bill accelerating to warp speed

4. Credit score

Illustration of an exam answer sheet with the words "credit score" hand written in red ink.

5. Deals!

6. It's personnel

Good morning, fintech friends. It's Monday. Wishing an easy fast to everyone observing Yom Kippur.

Situational awareness: Former UBS Chairman Axel Weber will join the board of German fintech Raisin.

🏈 @Ryan is ready for Monday Night Football.

1 big thing: Celsius creditors approve restructuring

Illustration of the Celsius logo frozen, with icicles.

Trump-era health insurance rule spurs three new deals

2. The BFD: A growing m-ICHRA-cosm

Illustration of a red cross spinning to reveal money

Illustration of a dart in the bullseye of a dartboard that says "credit score."

🗽Situational awareness: Just 16 days remain until Axios BFD in New York, featuring Blackstone president Jonathan Gray, Inflection AI co-founders Reid Hoffman and Mustafa Suleyman, and many more. Request your invitation.

🦅  @Ryan was not disappointed by Monday Night Football. Fly, Eagles, fly.

1. Financing cross-border trade

2. Celsius creditors approve restructuring

3. Binance exits Russia

4. Due diligence cometh

Photo Illustration of Logan Allin, Managing Partner at Fin Capital with a pattern of gavels

5. Cannabis banking bill moves forward

Illustration of the United States seal holding a marijuana leaf instead of an olive branch. 

It's Friday, Fintech readers. Research associate Natalie Breymeyer here with your weekly digest.

🍾 Her good friend is getting married this weekend, and Natalie can't wait to celebrate.

Special thanks to copy editor Rob Reinalda for his careful edits.

1 big thing: Due diligence cometh

2. The BFD: Cannabis banking bill moves forward

3. Unregulated ramps

A dotted outline of a person in a suit shrugging.

Illustration of a Scrabble board with letter tiles spelling "credit."

📈📉 Situational awareness: M&A activity in the U.S. has picked up through the third quarter but remains well below 2022 levels, Axios' Michael Flaherty writes.

 @Lucinda is procrastinating on buying tickets to Hong Kong in December.

 @Ryan is in favor of rebranding "tush push" to "brotherly shove."

After two frothy years of venture capital dealmaking, Fin Capital managing partner Logan Allin is predicting a reckoning of due diligence sins.

Why it matters: Fin Capital emerged as the most active investor in the fintech space in the first half of this year, per data from FT Partners.

What he's saying: "My view is that there's gonna be a lot of lawsuits coming out of [deals completed between] 2019 through 2021," he says.

Context: Stories of companies receiving term sheets in days rather than weeks or months became commonplace during the pandemic as investors rushed into tech-based businesses.

However, due diligence has come back into focus as LPs tighten their purse strings and cautionary tales (*cough* FTX *cough*) emerge.

This conversation has been edited for clarity.

Can you tell me how due diligence has changed between the pandemic era and now?

A lot of valuation work was being done off forward revenue. That was a very common trend from SPACs and the public markets where crossover investors were giving companies credit for 2024 to 2025 top-line revenue, not even earnings. Those numbers turned out to be a house of cards.

The pace has dramatically slowed. Now investors are no longer providing any credit for forward revenue on valuation; it's all based on trailing revenue or very near term. We're, for example, pricing companies on 2023 year-end revenue.

What kind of due diligence in particular were you seeing fall by the wayside?

We require audits or third-party forensic accounting as a part of our investment process, particularly for Series A onward. That lack of financial validation was a huge problem.

No. 2 was pipeline validation. Investors were taking at face value if a company said they were going to do $400 million in revenue next year rather than calling prospective customers.

Third was background checks and regulatory checks.

My view is that there's gonna be a lot of lawsuits coming out of [deals completed from] 2019 through 2021. If you were making misrepresentations and selling securities off falsified financials or producing forecasts that had no place in reality, you're in trouble. It's akin to celebrities saying NFTs were amazing and super-valuable. It's also becoming very clear that the SEC is regulating through enforcement.

There could also potentially be recourse in cases where the founder sold shares. If they didn't take any secondary and they lost out with the investors, obviously, there's not going to be much recourse there.

Tell me more about the background checks.

There was a deal that was done in 2021, where a VC called me and said, "Hey, I heard you passed on this deal. Why?" It was because the guy was getting sued for embezzlement. The VC just blew up on the phone, asking, "How did my legal team not catch this?"

I'm shocked how few people actually do background checks. With another check, we saw that a founder was just suing what seemed like all of his neighbors for how high their hedges were. Making a deal is like a marriage — and this was going to be a weird relationship. So we passed, and we told him why. He said, "That's absurd." We wished him well.

In a previous conversation, it also sounds like you see due diligence as a kind of investment opportunity.

Yeah, we call it GP/LP tech. We're actually putting the use of Standard Metrics (a Fin Capital investment for portfolio monitoring) into our side letters and our term sheets, which gives you more visibility into cash performance and the operating bank account.

This tech helps prevent stuff like Theranos. It's also one of my favorite litmus tests on the diligence side. If the CEO or co-founder reacts negatively to using Standard Metrics, we'll pass.

It sounds like you're anticipating lawsuits against founders and companies. Are you expecting any on the due diligence side from LPs against funds?

There already have been, with FTX and its investors like Sequoia. You're seeing it particularly against RIAs as it gives LPs more protection.

Logan Allin: Here comes the due diligence reckoning

Fin Capital sees a reckoning coming for lax due diligence.

Photo Illustration: Natalie Peeples/Axios. Photo courtesy of Fin Capital

Fintech

After two frothy years of venture capital dealmaking, Fin Capital managing partner Logan Allin is predicting a reckoning of due diligence sins.Why it matters: Fin Capital emerged as the most active investor in the fintech space in the first half of this year, per data from <a class="gtmContentClick" data-vars-link-text="FT Partners" data-vars-click-url="https://ftpartners.docsend.com/view/i6z46n247zjpd3gp" data-vars-content-id="20606c36-f3ab-4758-9c7a-132026e35ad8" data-vars-headline="Logan Allin: Here comes the due diligence reckoning" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://ftpartners.docsend.com/view/i6z46n247zjpd3gp" target="_blank">FT Partners</a>.

GTCR and Apax Partners are reportedly weighing an IPO or sale of insurance broker AssuredPartners in a deal that could be valued up to $16 billion, Bloomberg reports.

Why it's the BFD: A number of insurance brokerage stocks have been outperforming in public markets.

Context: Shares of brokerage and risk firm Arthur J. Gallagher are up about 23% since the start of the year, and shares of Brown & Brown are up 25% in the same period.

The S&P 500, for comparison, was up 12% for the same time frame.

Details: GTCR and Apax are weighing a full or partial sale as well as an IPO, per Bloomberg.

The firm is set to hit $850 million in EBITDA and was last valued at about $5.1 billion.

AssuredPartners notably focuses on property and casualty, as well as employee benefits.

Of note: The sector has remained active in tuck-in acquisitions. In a recent earnings call, Arthur J. Gallagher CFO Douglas Howell estimated that the company has upward of $3 billion to spend on M&A both this year and next.

Days ago, the company acquired Hartley Cylke Pacific Insurance Services.

Brown & Brown also completed six acquisitions in the second quarter.

The intrigue: Most insurtech startups that have gone public recently are focused specifically on disrupting this market of middlemen. 

Right now, the old-school middlemen are on far steadier ground.

AssuredPartners declined comment. Apax and GTCR did not respond to requests for comment. 

Insurance brokers have been outperforming the market.

GTCR and Apax Partners are reportedly weighing an IPO or sale of insurance broker AssuredPartners in a deal that could be valued up to $16 billion, Bloomberg reports.Why it&#x27;s the BFD: A number of insurance brokerage stocks have been outperforming in public markets.

Solaris, a German Banking as a Service startup last valued at about $1.6 billion, is struggling to raise a new round of funding, the Financial Times reports.

Why it matters: The startup's storyline — singed by crypto, hit by regulatory restraints, but still seeking venture-like growth — is common in the fintech world.

Details: Solaris reportedly seeks to raise roughly €100 million ($106.2 million) to deliver a credit card partnership with motor association ADAC.

ADAC has some 1.3 million credit cards in circulation, with the deal seen as a way for Solaris to diversify further from the fintech industry.

The capital is needed largely to meet regulatory capital requirements associated with taking on ADAC's €500 million credit card loan book, per the FT.

Of note: Like many BaaS players, Solaris' growth was fueled in part by customers in the fast-growing fintech sector. But as markets soured on profit-less startups, Solaris and its ilk felt the pain downstream.

Solaris worked, for instance, with German crypto bank Nuri, which filed for insolvency and only recently sought to make a comeback. 

U.K.-based Railsr is one of the sector's most notable failures, having once been valued at nearly $1 billion. The startup entered bankruptcy protection in March. 

A former subsidiary of Railsr, meanwhile, had its license revoked by the Bank of Lithuania in March — effectively forcing it into bankruptcy proceedings.

The Baas startup has been struggling to gather the funding.

Solaris, a German Banking as a Service startup last valued at about $1.6 billion, is struggling to raise a new round of funding, the <a class="gtmContentClick" data-vars-link-text="Financial Times reports" data-vars-click-url="https://www.ft.com/content/e46b679e-06d3-409a-8a4b-f695c703c744" data-vars-content-id="4b8bbc23-2627-41dd-bc4e-017d1415eb01" data-vars-headline="Solaris seeking €100 million" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.ft.com/content/e46b679e-06d3-409a-8a4b-f695c703c744" target="_blank">Financial Times reports</a>.Why it matters: The startup&#x27;s storyline — singed by crypto, hit by regulatory restraints, but still seeking venture-like growth — is common in the fintech world.

Apex Fintech expects to beat the financial figures it projected in its proposed SPAC merger two years ago, despite the retail trading slump, CEO Bill Capuzzi tells Axios.

Why he matters: Apex's stock-trading technology underpins eToro, Sofi, Betterment and others, giving it more than $120 billion in assets under custody.

Context: For comparison's sake, Robinhood's annual revenue hit a peak in 2021 and has slowed as interest rates have risen.

Apex says it expects 2023 will be its best year ever, thanks to a growing international business and a newer segment selling to advisory businesses.

This conversation comes roughly two years after the company canceled a deal that would've taken the company public and valued it at $4.7 billion.

This interview has been edited for brevity and clarity.

Apex in its SPAC filing estimated that it would hit $418 million in operating revenue in 2023, with adjusted EBITDA of $178 million. Where is the company now?

We'll meet or outperform. We're expecting to have our best year ever as a company.

It sort of defies some logic, but I'll explain why. While the U.S. business is waning, what is still growing for Apex is the advisory business.

Our international business also continues to win firms outside the U.S. that want to offer access to the states. We're also in Software as a Service;  we acquired Silver, and we've been building out product there.

The last part that's really the wind in our sails for 2023: The Fed keeps raising rates.

So stock trading has slowed down — but there are other opportunities.

There are places (from interest income) in cash, in stock loan. We're also in proxy. Let's say you own a bunch of stocks in your TD Ameritrade account. The company might do a corporate action and do a stock split or issue a dividend. We get paid to process that dividend. And there's just been more proxy activity in 2023, because markets are starting to settle in.

Where is your head at now in terms of a potential IPO?

We killed the 2021 SPAC deal because we were way outperforming what we said we were going to do. At the same time, Apex Crypto was part of the company (later selling to Bakkt), which caused lots of challenges with the SEC. And that was not how we want to go public.

We had an out in the fall, and we took it. The goal at that point was to pivot directly into an IPO — and we actually filed an S-1. But then the market fell out, so we just paused.

The firm's ready for it, and there's active conversations right now with a bunch of bankers. But there's no urgency, because let's say we raise $500 million. What would we do with it? We're profitable. I don't need operating cash. So then we get into the M&A conversation.

I don't want to raise a bunch of money before we need it, because that just creates a bunch of unreasonable expectations for a company.

What are the bankers telling you on potential valuation?

They're not actually giving us a range on valuation. They've given us multiples, which you can translate. We were going to come out as part of the SPAC at $4.7 billion pre-money. That's pretty frothy.

I think the valuation is less than what it was back then, despite the fact that their numbers are much better — we're profitable. But I think we're getting back to a normal, multiple range, and today it puts us in range with the SaaS-type companies.

What are your thoughts on where Twitter is going with its stock trading plans?

We're powering that; they use eToro, which uses Apex. It's really yet to get going. I think for a couple of reasons: One, I think on the macro level retail investors are waning. Number two: If you've seen it on Twitter, it's not intuitive yet.

A lot of the question is, how do you reduce clicks outside of Twitter and make it compliant? Investing is hard, because it's not just about building amazing technology and creating great ergonomics. It's about complying with this myriad of rules and regulations that span different regulatory bodies and different asset classes. So that's the partnership with eToro and Apex.

Apex Fintech CEO talks stock trading on Twitter, weighs IPO

And gives an update on the company's finances.

Photo illustration of Bill Capuzzi with geometric shapes and the Wall St. bull.

Photo illustration: Shoshana Gordon/Axios. Photo: Courtesy of Apex Fintech

Apex Fintech expects to beat the financial figures it projected in its proposed SPAC merger two years ago, despite the retail trading slump, CEO Bill Capuzzi tells Axios.Why he matters: Apex&#x27;s stock-trading technology underpins eToro, Sofi, Betterment and others, giving it more than $120 billion in assets <a class="gtmContentClick" data-vars-link-text="under custody" data-vars-click-url="https://apexfintechsolutions.com/industries/fintech/" data-vars-content-id="aab7e3ce-2a6b-47a0-b247-4f2f080b579d" data-vars-headline="Apex Fintech CEO talks stock trading on Twitter, weighs IPO" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://apexfintechsolutions.com/industries/fintech/" target="_blank">under custody</a>.

StretchDollar, a small-business health benefits startup, raised $1.6 million in pre-seed funding, the company announced today.

Why it matters: This is the third company in the newly formed Individual Coverage Healthcare Reimbursement Arrangement (ICHRA) space to get funding in the last month.

Flashback: A Trump administration rule, effected in 2020, allows employers to pay a fixed amount that would go toward workers' health care costs (both insurance and additional needs).

Dubbed ICHRA, the rule would give employees potentially more insurance options and has been offered as an alternative to typical group insurance programs.

The arrangement also gives employers a better sense of how much they'll pay out in health care costs in a given year.

Details: Precursor Ventures, Elefund, v1vc, Kindergarten Ventures, and Westerly Ventures invested in StretchDollar, which offers a platform for employers to set up an ICHRA program.

Just a week ago, another player in the space, Take Command, raised $25 million led by Edison Partners.

Another player, Venteur Health Insurance, raised $7.6 million in mid-August, led by GSR.

The bottom line: Investor interest is growing for this insurance microcosm, which began forming just three years ago.

StretchDollar is the third company to have raised funding in the last month.

Illustration of an umbrella with a caduceus as the shaft. 

StretchDollar, a small-business health benefits startup, raised $1.6 million in pre-seed funding, the company announced today.Why it matters: This is the third company in the newly formed Individual Coverage Healthcare Reimbursement Arrangement (ICHRA) space to get funding in the last month.

Lucinda Shen

Stories

Logan Allin: Here comes the due diligence reckoning

AssuredPartners reportedly weighing IPO, sale

Trump-era health insurance rule spurs three new deals

Solaris seeking €100 million

Apex Fintech CEO talks stock trading on Twitter, weighs IPO

Newsletter editions

Fintech: 🗞 Catch up quick

Fintech: Due diligence reckoning

Fintech: Brokering AssuredPartners

Fintech: 👀 ICHRA trending

Fintech: Mexico trade exclusive