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BFD Expert Voices - Private Credit

BFD Expert Voices

Stock-trading company Public agreed to acquire over 15,000 brokerage accounts from Stocktwits, the two companies tell Lucinda exclusively.

Why it matters: It marks Stocktwits' exit from the stock-brokerage business, just two years after it joined the fray.

Behind the scenes: The transaction (expected to close in about 30 days) is valued at under $10 million, according to a source familiar with the matter.

Zoom in: For Public, which currently has 3 million users, the deal is about customer acquisition.

Public catered to long-term holders at inception, but it has increasingly launched features — like options trading — that attract more active traders.

"The crux of it is, we want investors who are highly engaged," Public COO Stephen Sikes says, noting Stocktwits users generally trade more often.

Between the lines: Stocktwits was profitable on a net income basis before it launched stock trading in July 2022, says CEO Howard Lindzon, who returned to the role this year.

Exiting the business will make it profitable again, he tells Lucinda.

Founded as a social site for traders, Stocktwits became a trading platform under former CEO Rishi Khanna — just as retail activity began to slow.

The company struggled with the idea of increasing marketing spending to shift its 1 million-plus monthly active users from their existing brokerages to Stocktwits.

The company laid off 37 employees this year due to the retreat.

What they're saying: "The amount of volume you have to do to make trading a profitable business is just way higher than anticipated," says Lindzon.

"When I came back this year, the last thing I wanted to be in was the brokerage business. We wanted to focus on profitability."

The big picture: Stocktwits' exit underlines the intense competition in an industry that includes Robinhood and Charles Schwab.

Stock brokerage startups raised capital easily during the pandemic and were among of its biggest beneficiaries.

Now that the funding tap has turned to AI and account openings have slowed in recent quarters, companies are diversifying their revenue streams (Robinhood and Public are increasingly earning from interest on deposits), while others seek consolidation.

What's next: Stocktwits is refocusing on its social media business and plans to capitalize on its data in the AI boom.

Pointing to the $60 million deal Reddit cut with Google to make its data available for training AI models, Lindzon says the company is building up a data business as well.

1 big thing: Stock-trading consolidation

an illustration of a handshake going across a stock ticker

Financing startup Pipe has fully pivoted its business to offer embedded Capital as a Service to B2B companies looking to lend to their end customers.

Why it's the BFD: The new product will make it easier for vertical SaaS platforms and payment processors to offer revenue-based financing solutions, Ryan writes.

Context: In the frothy days of 2021, Pipe raised more than $300 million and secured a $2 billion valuation to provide small businesses with revenue-based financing.

But as the market turned in 2022, Pipe's founding team stepped down, and former Square and Intuit exec Luke Voiles took over as CEO soon after.

Voiles hired a whole new C-suite with the intent of pivoting Pipe from a direct B2B lender to a B2B2B capital provider.

The latest: Now, about a year after Voiles took the helm, Pipe is officially launching its embedded solution and naming its first partners.

The partners include Priority, an integrated payments and banking platform; Infinicept, an embedded payments processor; and Boulevard, a vertical SaaS platform for salons and self-care businesses.

The company has also secured enough capital to deploy more than $1 billion over the next year.

How it works: Partners can embed Pipe's capital platform into their own product offerings through a series of APIs.

Pipe handles all the risk, compliance and underwriting work and shares about 25% of profits with partners.

"If you think about it, [our partners] can get 100% margin ... just straight to the bottom line. They end up with a profitable business out of the gate, that adds average revenue per customer pretty dramatically," Voiles says.

Between the lines: Voiles says the Capital as a Service offering will enable platforms that previously didn't have the necessary scale to offer financing.

"Based on my experience ... you need an 85- to 100-person team to do lending the right way," he says.

What's next: Pipe is working with two capital partners to fund its loans, but the company eventually wants to move to a balance sheet-light model where it's more of a market maker.

"Fundamentally, we want to get to a place where we ... deploy capital to the underlying small businesses, and then we can turn around and sell that risk to the capital markets," Voiles says.

2. The BFD: Pipe's pivot

Illustration of a pipe opened up with cash spewing out 

👑 Fintech retakes crown in U.K. (UK Tech News)

After climate tech took the lead in 2023, fintech once again became the country's highest-funded startup sector in the first quarter of 2024. U.K. fintech companies such as Monzo raised $1.4 billion across 73 rounds.

📜 Revolut, Monzo, urge government to ditch share trading tax (City A.M.)

A group of fintechs dubbed the Unicorn Council for U.K. Fintech is asking for an end to the Stamp Duty on buying shares. The group argues that the rule discourages investors from investing in London-listed companies and is specifically asking that it not be applied to the new Pisces market, where private shares can change hands.

📉 Wise revenue misses estimates (Bloomberg)

Shares of Wise fell today after the British fintech said fourth-quarter revenue rose 24%, compared with a year earlier, to £277.2 million ($345 million).

The London-based digital bank Zopa said it hit pre-tax profits of £15.8 million in 2023, compared with a loss of £26 million for the year prior.  It said its operating income hit £222 million, up 47.8% year over year.

3. Credit score

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

• Finmid, a German embedded fintech startup, raised €23m ($24.7m) in a Series A from Blossom Capital, Earlybird VC and others. axios.link/49CYpa3

• Bridgewise, a Tel Aviv-based AI-based analysis platform for global securities, raised $21m led by Six Group with participation from Group11 and L4 Venture Builder. axios.link/3vUTl3a

• Crypto Valley Exchange, a DeFi exchange, raised $7m co-led by Fabric Ventures and Kyber Capital Crypto Fund, with contributions from Amdax, Wave Digital, Funfair Ventures, Seier Capital Family Office, Five T Group and Saxon. axios.link/3vLmopY

• Claimbuddy, an Indian health insurance claim assistance platform, raised a $5m Series A. Bharat Innovation Fund led and was joined by  CAC Capital, Chiratae Ventures and Rebright Partners. axios.link/3xzesIW

• Bain Capital has agreed to sell Zellis Group, a U.K.-based payroll software company, to Apax Partners at a £1.25b ($1.56b) valuation, per Bloomberg. Apax is partly funding the deal with a unitranche loan of £450m from private credit funds. axios.link/43ZUCT3

• Saxo Bank, the Danish bank, is is exploring a sale after talks to merge with a blank-check company fell apart, per Reuters. A deal could value the firm between 1.5b to 2b euros ($1.6b to $2.1b). axios.link/3vW1q7H

• Prime Financial Solutions and Mortgages, a mortgage company, and Yumo Finance, a business loan company, are merging. axios.link/3Q2BDlb

• Marex Group and its investors are seeking to raise as much as $323 million in a U.S. IPO. axios.link/448ajrt

4. Deals!

• Paul Gallant was named CPO of Hazeltree. He was previously head of post-trade product management at BlackRock. axios.link/4489C1l

• Rob Pettman was named CRO and president at Tifin. He was previously executive vice president of wealth management solutions at LPL Financial. axios.link/3UhiTku

• Rishi Sachdeva was named head of fintech at Gigs. He was previously head of GTM partnerships at Stripe. axios.link/3Q0JZcY

5. It's personnel

6. One fun thing: 🍖 Treat laundering 

A image showing a TD Bank atm for dogs that dispenses doggy treats.

Situational awareness: The DOJ is planning to sue Ticketmaster operator Live Nation on antitrust grounds.

📺 @Lucinda is loving the new "Fallout" show.

🎤 @George wants everyone to know, Bruce Springsteen's still got it. 

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

And thanks to you for reading this edition of Fintech Deals. Please tell your fintech friends and concert-goers about this newsletter. They can sign up here.

April 16, 2024

1 big thing: Stock-trading consolidation