Once upon a time, there was a city called “Publik” where investors and entrepreneurs lived. The city was large but fenced. The fencing was for protection and those living inside had to abide by rules and regulations that looked after the interests of both casts, the investors and the entrepreneurs.
Outside that city, was an open space and most of the rules that applied inside the walls of “Publik” didn’t apply. Few people resided in the outside that was coined as “PrivaTe”. For years, those from the “PrivaTe” marketplace would come up with business ideas, get some funding and eventually aspire to become part of the “Publik” city, once their revenues reached approaching $20mil per yr. Funding landed in their laps in bags that a mascot from the “Publik” marketplace would bring every now and then and distribute to them. As if, it was leftovers that those in the “Publik” marketplace didn’t want to invest in their community and had decided to fund the outcasts – the clochards from the “PrivaTe” marketplace. The insiders were placing bets on the outsiders.
The “PrivaTe” marketplace has had a long history but it has always been small compared to the fenced “Publik” marketplace. The wealthy from the inside would spend time to spot private opportunities that may come-in eventually from the “PrivaTe marketplace.
I took a look recently (of course, from the inside) to what is happening over that fence. I couldn’t believe what I saw. There was a ghetto, a “PrivaTe” market ghetto, shaping up. I scrubbed my eyes, to digest the scene:
Lots of people clustered in the PrivaTe marketplace. As if the Teracotta warriors were on exhibition at the outside of the Publik fences. So many more than before, these tech-born entrepreneurs, had formed a huge ghetto. I also found out that these entrepreneurs were not so eager as in the past, to cross over the fences and come into the city. A real structural change has happened recently in these societies. The PrivaTe market ghetto has become highly populated, simply because the cost of prototyping and starting a business has come down by a factor of approximately 1000 times in the last 15 years (CB insights)! So, often investors from the Publik, throw little bags with funding outside to the PrivaTe market ghetto.
Crowd funding platforms are the new “carriages” that load little funding bags and take them out to the PrivaTe ghetto field.
The other thing I heard as I wondered around, is that most of these Teracotta warriors aren’t that eager to push their way into the Publik. They hang out in PrivaTe marketplace much longer than the older days. I wondered why? Andreessen Horowitz, explains this recent phenomenon with a new term. He claims that sometimes instead of the typical carriages that bring the small bags to fund the Teracotta warriors, there is a car that crosses the fence. It is actually an SUV loaded with money, for only one, single warrior! Andreessen Horowitz calls the funding cargo of the SUV, a “quasi-IPO”. It is actually a boat load of funding, $40million or even more, that is handed to the “purple cow” that stands out from the crowd of the Teraccota warriors.
The PrivaTe market ghetto is growing.
It is full of Teraccota warriors prototyping night and day, getting fed with the small bags of seed funding that come from the Publik on the new carriages, and dreaming of the SUV, the Quasi model, approaching them.
In InvestTech only, the Quasi-IPOs are popping up everywhere. Samantha Sharf from Forbes, discusses the broader issue of the largest Fitnech funding rounds and says that 26 were over $50mil based on Anand Sanwal’s information (founder of CB Insights).
In the robo-advisor subsector, Wealthfront raised $64 mil last year (from a total of $130mil), Personal Capital raised $50mil (from a total of $130mil). Just two examples from the US. The largest number of “purple cows” from the sea of Teracotta warriors are in the lending subspace. Just two picks from Europe this time: Zencap a German online market place for company loans raised $230-million from a US investor (hot of the press news, covered in the recent FintechForum Newsletter); Funding Circle in the UK in the same subsector rasied $150mil this year (from a total of $273mil). From the digital currency asset class, Coinjar from Australia raised $454million two years ago. From the subspace of intelligent data science for improving financial decisions, I reference two US Fintechs: ZestFinance, that raised $73mil 3yrs ago (from a total of $112mil) and Kensho that raised $48mil last year.
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