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BFD Expert Voices - Private Credit

BFD Expert Voices

Just 31% of fintech companies that raised Series A funding in 2021 have garnered enough investor interest to raise a Series B, F-Prime Capital's 2024 State of Fintech report estimates.

Why it matters: The curse of high expectations (and valuations) has created a lost generation of fintech startups struggling to raise capital or find an exit, Lucinda writes.

By the numbers: F-Prime reports that 819 fintech companies raised about $15 billion worth of Series A funding in 2021.

Most have not raised a Series B, the typical signal that a company has hit significant revenue and "product market fit."

Among that majority, F-Prime's report notes that 11% went on to raise bridge rounds, another 14% shut down, 1% were acquired, and another 43% had not yet announced any Series B funding 24 months or more after their Series A.

Of note: Though not perfectly apples to apples, CBInsights data on companies from 2008 to 2018 found that 64% of companies that had raised a second round of funding (corresponding usually to a Series A) raised a subsequent round (corresponding with a Series B).

Those fundings happened at a median of 18 months after the Series A. 

Zoom out: Investors are expecting M&A to pick up, though smaller acquisitions are more likely than bigger ones. Companies are focusing on acquihires, says F-Prime principal Rocio Wu.

Public fintech companies spent about $46 billion in 2021 to buy other businesses in the space, with Square's $29 billion Afterpay acquisition driving that figure. But that number fell to $3 billion in 2023, per F-Prime.

💭 Lucinda's thought bubble: Series B rounds are infamously difficult to raise. It's only become more challenging as investors have changed their minds about what kinds of fintech business models deserve funding.

In a flip that began in mid-2020, B2B models are in; consumer-focused on-balance-sheet lending and interchange are out. 

Editor's note: This story has been corrected to state that public fintech M&A was $3 billion in 2023, not $1 billion.

1 big thing: Fintech's lost generation

Illustration of an old-fashioned personal computer made of marble with a screen reading "R.I.P."

Rain, an earned wage access platform for employers, secured $300 million in a credit facility from Clear Haven Capital Management, the company tells Ryan exclusively.

Why it's the BFD: The product offers workers an alternative to payday loans and high-interest credit cards while providing a retention tool to employers.

By the numbers: The $300 million represents a sixfold increase in facility capacity, according to Rain co-founder Fred Choquette.

"We've gotten very efficient in how we manage your capital, so we actually think that we'll be able to support 10 times our volume," Choquette says.

That would take it from about $1 billion in annual disbursements to about $10 billion.

How it works: Rain partners with employers to allow workers to get paid after each shift instead of having to wait until their usual payday.

Employees can access their money three ways: free through an ACH direct deposit with a one-to-three-day settlement; by using a Rain debit card; or for a fee (around $3) have wages instantly sent to their bank account.

Rain has integrated with most major payroll and timekeeping systems in the U.S., giving employers the files they need for an employee to get paid the remaining wages, net of any earned wages delivered by Rain.

Its system also automates repayment from the employer back to Rain, leading to a loss rate of close to zero.

Separately, Rain also provides a suite of financial wellness features and financial literacy tools to help employees build credit, manage their spending, and lower their debt.

"We think success at the user level looks like needing earned wage access less and less over time," Rain co-founder Alex Bradford says.

Meanwhile, Rain says about 30% of workers at its partners adopt the earned wage access benefit, which leads to increased retention and productivity.

State of play: Rain started at the onset of the COVID-19 pandemic, and many initial customers were employers of frontline workers in the quick-service restaurant industry.

Since then, it's expanded to serve several different verticals that primarily employ shift or hourly workers.

The big picture: "Americans spend something like $170 billion every year ... in the form of predatory financial products like overdraft fees, payday loans, and high-interest credit cards," Bradford says.

2. The BFD: Rain secures $300M credit facility

Illustration of a hand holding an umbrella with a  hundred dollar bill on it under a rain cloud

Code, a payments organization building upon the kin (KIN) cryptocurrency, has raised $6.5 million in a seed round, Axios' Brady Dale writes.

Why it matters: Code has built an app to take on one of the internet's oldest dreams: micropayments.

The round was co-led by M13 and Union Square Ventures, with a variety of noteworthy individual investors.

What they're saying: "We believe the timing could not be better. There is more creative output around the world than ever before," Code said in a statement shared with Axios.

By the numbers: Kin's value is enumerated in thousandths of a penny, because it's designed to be very easy to spend small amounts of money.

The max supply of Bitcoin is 21 million, while there are about 3 trillion kin in the world.

Quick take: If Code's app makes kin click with the public, look for some regulatory scrutiny in crypto land (first time for everything).

3. Micropayments startup Code raises $6.5M

👋 Vast Bank exits the crypto market (American Banker)

The $1 billion asset bank has disabled and removed the Vast Crypto Mobile Banking platform from app stores effective Jan. 31. It has been offering customers the ability to buy crypto through partnerships with Coinbase and SAP since February 2021.

🇮🇳 India anti-fraud agency probing Paytm over forex violations (Reuters)

India's financial crime-fighting agency is investigating whether platforms run by One 97 Communications were involved in violations of foreign exchange rules, two senior government sources said.

🏦 Banking groups sue over anti-redlining rules (New York Times)

Trade groups sued the FDIC, Federal Reserve and OCC yesterday, saying regulators have overstepped in updating a law meant to reverse the impact of redlining.

The lawsuit comes amid growing tension between banks and regulators, with the former saying that the latter have refused compromises.

4. Credit score

Illustration of a referee's hand holding a whistle and a red card that says "credit score."

Deals Tracker update: You can now search our database straight from the Axios Pro home page.

• Tuum, an Estonian core banking provider, raised €25m in Series B financing led by Commerzbank. https://axios.link/48eGS7K

• Traive, a Brazilian agriculture credit risk startup, raised $20m. Banco do Brasil led the round. https://axios.link/3ujJqDz

• Kin, a direct-to-consumer home insurance company, raised $15m in financing from Activate Capital. https://axios.link/49185vJ

• Finally, a Miami-based accounting and finance automation startup, raised $10m led by PeakSpan Capital with participation from Active Capital. https://axios.link/4bt2uQn

• Truflation, a blockchain-based economic data provider, raised $6m. Investors include Laser Digital (Nomura's digital asset subsidiary), Red Beard Ventures, Modular Capital, Abra, G20 and Four Seasons Ventures. truflation.com

• LN Markets, a Bitcoin exchange, raised $3m. Ego Death Capital led and was joined by Lemniscap and Timechain. https://axios.link/3w1GQSZ

• Candor Technology, an automated underwriting technology company, closed a Series B equity funding round from Rice Park. https://axios.link/48bRSlX

• Hellman & Friedman and Valeas Capital Partners invested in Chicago-based advisory CPA firm Baker Tilly. www.bakertilly.com

• ID Finance, a Barcelona-based financial wellness company, secured $150m in debt funding from i80 Group. https://axios.link/4979fpE

• Cred, a Bengaluru-based fintech startup, agreed to buy mutual fund and stock investment platform Kuvera. Terms were not disclosed. https://axios.link/3umxl0q

5. Deals!

• Rahul Buxani, Shal Chowdhury, Matthew Schneider, and Ted Conway were hired as managing directors for Keefe, Bruyette & Woods' fintech and financial services group. https://axios.link/42vwuaj

• Mike Clayville, chief customer officer at Stripe, left the payments giant last month. https://axios.link/3UuJKtV

• Colin Fyfe joined U.K.-based Unity Trust Bank (UTB) as CEO. He succeeds Deborah Hazell, who resigned at year-end. https://axios.link/488f2Kj

• Jim Hinchley was named president of insurance at Fairmatic. https://axios.link/42tlqdG

• Tom Holman, former head of product for payment acceptance at Stripe, joined Flex as CPO. https://axios.link/3umDmKo

• Nicholas Munson, NYCB's head of risk, left the struggling community bank this year. https://axios.link/49H7AqL

• Petri Nikkilä was named global CEO of Openbank and head of the Digital Consumer Bank's non-auto consumer business. https://axios.link/3Utm3Su

• Rob Wright was named chief product officer at eCapital after serving as chief product officer for Triumph Financial. https://axios.link/49m0jfJ

6. It's personnel

🛒 Situational awareness: The Axios Pro Retail Deals team will host a virtual "Ask the newsroom" event on the Kroger-Albertsons situation tomorrow at 12:30pm ET. Register here.

🪛 @Lucinda is happy about her fixed dresser drawer.

🇧🇷️  @Ryan is looking up flights to São Paulo to check out the Eagles' "home" opener.

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

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

February 06, 2024

1 big thing: Fintech's lost generation