The term ‘fintech unicorns’ refers to startups disrupting an industry or raising enough capital to achieve a $1 billion valuation. The term was coined by angel investor Aileen Lee, who defined it as one that emerges from an avalanche of startups in its first couple of years.
The idea behind this is simple. Investors who think a company could have blockbuster success in the future will pay far above what the company is worth.
These companies are usually in their first few years of existence and haven’t yet reached profitability.
Fintech Unicorn List Growth
Some fintech startups can become so valuable that they’re worth more than banks or insurance companies! However, just because these companies are high valuations doesn’t mean that all fintech startups will reach unicorn status.
The investor pays for any potential earnings that investors discount in other market parts. So, for example, if you buy stock in Google at its IPO price and hold it until today, your compounded annual growth rate would be around 11% over 18 years (assuming no dividends). That’s a pretty good return!
If instead, an investor had invested $1 million into buying Apple’s shares back when they were trading at $5 per share and then selling them at current prices, their CAGR would be around 81% per year for almost 30 years straight!
Timing Is Essential For Investors
In measuring a company’s anticipated growth rate and market share, investors value the personal relationship between startup founders and venture capital firms.
Enterprising entrepreneurs should work toward building and establishing these close relationships. One can achieve this through personal interactions over email or social media platforms like LinkedIn, where you can share content or post job listings for your business. However, there is a right way to interact with investors: don’t ask them for money unless they’ve permitted you.
First, there was a lot of money flowing into startups at the time, which meant that many high-value businesses were being created.
Second, these businesses were growing very fast and thus had tremendous value potential.
Third, she saw that all these new companies shared some common traits: they were built around technology, allowed consumers access to business services in a way they hadn’t been able to before (such as Uber), and disrupted traditional industries (like Airbnb).
Key Fintech Unicorn Segments
Finance, technology, and healthcare are three sectors that fintech companies have most actively disrupted. For example, companies like PayPal, Square, and Stripe have helped transform how we pay for things at the point of sale. Others, like Airtasker and Funding Circle, have connected millions of people with new ways of finding work or investing their cash in small businesses worldwide.
It has become more common for the biggest fintech unicorns to delay going public, partly because they don’t need to tap the public market to raise money.
There were 150 fintech unicorns worldwide as of 2016, with an average valuation of $1.9 billion each. Some of these once-secretive startups are becoming more open about their business models and valuations. If you’re an investor looking at one of them, understanding what makes a company a fintech unicorn could help you decide whether its stock is worth buying or selling.
Key trends to look at today include:
- Why so many unicorns have decided against going public
- How much money is available for startups that choose not to go public yet still want venture capital investment?
- What kind of risks come with investing in private companies rather than ones that trade on exchanges like NASDAQ or NYSE Euronext?
Key Growth Areas To Find a Fintech Unicorn
The largest fintech unicorns worldwide are Chinese startups, with over 60% operating in the country. The US comes in second with 16%, followed by Europe with 11%. That is especially notable because China’s fintech industry has been growing exponentially since 2016, while Europe and the United States have plateaued in recent years.
In China, nearly half of all fintech unicorns operate in the payments sector, compared with only 16% in the US and 11% in Europe. Payments are an essential step toward digitizing any financial service. Once you have a way to send money across borders or between people without using cash, you can build other products around that foundation (like investing).
Even so, when you read about how much money a particular fintech unicorn has raised, you’re seeing the amount of funding from venture capital firms that those companies have received. That differs from public companies, which often get their funding from stock markets (or sometimes direct sales).
While some unicorns sell their shares to investors and make money off these sales, it’s not how most make profits. Instead, unicorns tend to focus on investing in themselves through revenue rather than venture capital financing.
Fintech unicorns are the next big thing in fintech. They are going to change the way we do banking and investing. Were you aware of this before today? And which fintech unicorn is on your radar?