Blueprint: 🔥Fintech 2021🔥 $100B+ year with 100 $100MM+ deals; Nubank going public; Alchemy's $250MM a16z round for crypto infra
Gm Fintech Futurists — our agenda for today is below.
DIGITAL LENDING: Indian fintech CRED valued at $4 billion following $251 million fundraise (link here). We dig into the numbers.
RESEARCH: DeFi 2.0 Primer (part 2): Tokemak aims to aggregate and improve market making, like a decentralized Citadel (link here)
PODCAST: Chainlink Co-Founder Sergey Nazarov on building the global decentralized oracle network powering DeFi and Web3 (link here)
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NEOBANKS: Nubank files to go public (link here) and CB Insights State Of Fintech Q3’21 Report (link here)
Once in a while we say that it has never been better to be a fintech company. The CB Insights quarterly report brings this point home, with a record $94 billion in 2021 fintech funding YTD. It was a mere $20B in venture funding for fintech in 2015.
Further, mega rounds of $100 million or more have increased over 200% since a year ago. That’s just, like, a lot of money all the time at the high end. But at the low end, it’s still pretty good. If we look at median valuations, the numbers floated from $5 million in 2016 to $25 million in 2021. Hot! Hot! Hot!
This capital farm is starting to exit the private markets and float on the public markets. In particular, the neobank crop is ready for harvest! Brazilian Nubank announced a filing to go public, potentially in 2021. The bank is filing with the SEC as well as the CVM in Brazil, planning to list in the US and have a program of Brazilian Depositary Receipts in Brazil.
Nu has long been a definitive name in the neobanking space, raising $2.3 billion in funding since its founding in 2013, with the most recent round being $750 million from Berkshire Hathaway at a $30 billion valuation. In June, the firm reported 40 million customers (up from 25 million in 2020, and 6 million in 2018), and earlier this month the bank turned its first-ever half year profit. There are only a couple of national banking champions at this scale. Maybe Tinkoff (our podcast on it here), Chime, and Revolut. Reminder that Chime is thinking about going public next March with a target valuation of $35 to $45 billion, and N26 just pulled in a $9 billion valuation.
Let’s just pause to acknowledge that $100 billion in financial technology venture, and $150 billion (or whatever it will be in 2021 with Robinhood, Coinbase, Wise, etc.) in SPACs and IPOs for new Fintechs, is our new normal. Not to mention the $2.5 trillion for the crypto asset class that these footprints will inevitably distribute. Check out our continued coverage on neobanks here.
CRYPTO: ‘Crypto AWS’ Alchemy Hits $3.5B Valuation in $250M Round Led by A16z (link here) and Blockdaemon: $155 Million Funding And $1.255 Billion Valuation (link here)
Alchemy, a crypto infrastructure firm offering a APIs and developer tools, raised $250 million in Series C funding from a16z at a $3.5 billion valuation. This is a concentrated bet in Ethereum node infrastructure for Andreessen Horowitz, which has parked itself across Web3 bets from a $2.2 billion seed stage to owning $11 billion of Coinbase. The venture firms sings the songs of Internet revolution!
The investment is a competitive advantage for Alchemy, which will benefit from visibility into early projects onboarded by a16z. Another growth vector is the recent partnership with Adobe to underpin its NFT platform.
Another comparable player is BlockDaemon, which raised $155 million at a $1.3 billion valuation earlier in the month. The YOLO capital in the investment was the SoftBank Vision Fund. We are also closely familiar with ConsenSys’ Infura, which similarly plays in the “AWS for Web3”, and supports most of the top decentralized applications.
It is hard to back into revenue from publicly available information. But let’s say that Alchemy and Infura both generate their economics from API access to Web3 nodes across blockchains. That means that any time you request some service from OpenSea or Aave, some portion of that is served through such infrastructure.
Such a request will be priced either on per-unit basis, or by how much computational resource it eats up. The basic tiers are $50/month or $600/year, which implies a $60 million run rate at 100,000 paying users — which feels a bit high in terms of actual devs in the ecosystem. BlockDaemon also does staking, and claims to support over $10 billion in staked assets. Assuming something like a 10 bps fee on those assets yields about $10 million in financial revenue, though that is just a guess in the dark.
We don’t think these are winner-take-all-markets, just as AWS, Google Cloud, and Microsoft Azure all co-exist. Further, decentralization maximalists tend to get concerned when hardware infrastructure captures software and financial decentralization. It is still early innings, but the right directional bet for what the role of financial and computational rails should look like.
DIGITAL LENDING: Indian fintech CRED valued at $4 billion following $251 million fundraise (link here)
Indian fintech unicorn CRED raised $251 million in its third financing round at a valuation of $4 billion. The fintech helps Indian customers with their credit scores, providing help with paying credit card bills, and giving gamified rewards when they do so on time. The firm also cross-sells premium brands through app, acting as a a luxury marketplace and a financial helper rolled into one. The company made about $60,000 last year, while burning through $50 million — if our conversions are right. An implied enterprise value of $530 per user seems sort of normal for Western fintechs, but very expensive in this case, regardless of the size of the opportunity.
CRED targets premium audiences rather than the hundreds of millions of lower income earners in India. And it’s able to do this for two reasons: (1) the credit card industry is dominated by 4 banks (HDFC, SBI, ICICI, and Axis), which simplifies the integration process, and (2) credit cards are seen as an aspirational product in India, attracting many users who can’t afford to get it wrong. Traction is getting there — 7.5 million customers now using CRED’s services across India. For context, there are 57 million credit cards in India, mostly in the high-end market, versus 830 million debit cards forming the retail chassis.
A couple of takeaways. First, think about the role Credit Karma, or Credit Sesame, or Lending Tree plays for American credit. A consumer plugs in their bank accounts and Experian/Equifax connectors, the website returns your credit score, and then markets a bunch of financial products around it. The basic model is to function as lead generation into more debt, though sometimes at lower interest rates and therefore better for the user. CRED similarly plugs into the credit machinery, but it does more than that — it facilitates the rewards programs that incentivize people to get a credit card in the first place. Indian credit card penetration is fairly low when compared with the US (single digits, vs 40%+), and so part of this story is to drive adoption of credit cards as a payment method, vs. debit cards and UPI.
If the market grows 100x, and the company’s revenue model grows 100x, then this might all make sense. It’s not impossible, but it’s hard.
Rest of the Best
Here are the rest of the updates hitting our radar:
DIGITAL INVESTING: Why the SEC's green light for Bitcoin ETFs failed to convince Charles Schwab & Co. to make crypto trading available to its 32.5 million retail accounts (link here)
NEOBANK: Torpago Raises $77 Million, Valued at Over $1 Billion (link here)
NEOBANK: Monzo in talks to raise £300m at £3 billion valuation (link here)
PAYMENTS: Neobanking Fintech Zolve Acquires $40M to Streamline Global Access to Digital Financial Services (link here)
PAYMENTS: Deel Raises Huge $425 Million Series D at $5.5 Billion Valuation (link here)
REGULATION, CBDC: Central Bank of Sri Lanka completes proof-of-concept KYC platform (link here)
DEFI: BlockBank Will Launch Its DeFi Application, Where Users Can Interact With an AI-Powered “Robo Advisor” (link here)
NFT: Facebook’s 2021 XR Investments to Total $10 Billion, Even More in 2022 & Beyond (link here)
INSURTECH: Acko raises $225 million (link here)
Analysis: DeFi 2.0 Primer (part 2): Tokemak aims to aggregate and improve market making, like a decentralized Citadel (link here)
Part 2 of the primer on emerging DeFi 2.0 liquidity mechanisms — how is Tokemak aggregating market making across liquidity farms, and what does the token do?
This week we continue the discussion of the shape of DeFi 2.0. We highlight Tokemak, a protocol that aims to aggregate and consolidate liquity across existing projects. Instead of having many different market makers and pools across the ecosystem, Tokemak could provide a clear meta-machine that optimizes rewards and rates across protocol emissions. This has interesting implications for overall industry structure, which we explore and compare to equities and asset management examples.
Podcast Conversation: Chainlink Co-Founder Sergey Nazarov on building the global decentralized oracle network powering DeFi and Web3 (link here)
In this conversation, we chat with Sergey Nazarov – the Co-Founder of Chainlink, a decentralized oracle network that provides data to smart contracts. Chainlink is used by enterprises (SWIFT, Google, Oracle) and smart contract teams (Web3 Foundation, Zeppelin, Open Law, Market Protocol, and many others).
More specifically, we touch on what it means to build in DeFi, what Oracles are like, what smart contracts are and what they enable, how all of this works and where the protocol is going, and so much more!
“…And then the entire industry really shifted to tokens because tokens was the functionality, but I just stuck with that definition. And even if architecturally you look at what defines a smart contract, in the early days, it would probably be one piece of code. So, it'd be one smart contract. And then it expanded to be two smart contracts, the main contract and the multisig. And then it expanded to three contracts, the main contract, the multisig and the dow voting scheme. And then it expanded to those three on chain contracts and an off-chain Oracle network that powered it with events. And now it's actually expanded to multiple Oracle networks. So, we have smart contracts that use the Chainlink networks of which there are hundreds now, going to thousands I think pretty soon. We have smart contracts that actually use multiple Oracle networks for different data. And they use an Oracle network for automation through something called keepers, and they use an Oracle for something like random number generation.”
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