This weekend saw the news break of yet another big M&A “tech startup” deal, with rumors flying that Intuit is about to acquire Credit Karma. It’s late on Sunday night and I’m tired, so I’m going to cut right to the chase on this one and quickly unpack what the key takeaways are for me from this news item:
1/ Fintech On Fire: Another week, another major fintech exit. Wasn’t it just last week that Visa bought Plaid, or that PayPal bought Honey, etc.? Fintech as a sector is beyond red hot – it is magma layer hot. This is not news for any builder or investor focused in this area, but it does seem like the broader tech ecosystem is realizing the scale of the impact — to the point where, when we are all said and done with this era, that fintech market caps and exits worldwide may be greater than the tally for social networks,
2/ Industry Consolidation: An old friend once remarked to me that “capital has a tendency to aggregate.” Well, that is certainly happening across the fintech sector. Recent large acquisitions include Plaid going to Visa for $5B+; Morgan Stanley buying E-Trade for $13B; Ally Financial buying Cardworks for $2.6B; PayPal and acquiring Honey for $4B. Barring some unforeseen economic event, there is no reason to think these trend will slow down — if anything, it may accelerate as large incumbents watch what their competition is doing, they have mountains of cash now, and may be motivated to use a mix of cash and stock in this bull market to buy a piece of the next frontier for fintech services.
3/ Owning The Customer Relationship: It’s common knowledge within startup world that figuring out how to efficiently acquire and retain customers is critical to one’s success. In fintech, it’s particularly hard to acquire customers given the high costs of targeting them and/or signing up new users. The giants use their cash heaps to drive up ad prices and marketing effectively. Credit Karma, which has over 80M users and gets paid in fees when it surfaces recommendations for financial products that convert, spent the past decade building a brand recognizable on and off the Internet, driving users back to the site, and acting as a front door for new products built by other providers, mainly credit cards and loans. Now for Intuit, the $75B public company famous for accounting and tax software, they’ve used 10% of their value during a bull stock market (and their largest purchase ever) to expand their surface area and potential for new consumer-facing financial products in the future.
4/ VC Returns: As always, when a big exit occurs, insiders want to know “Who invested?” You can see Crunchbase for the list, but worth noting Ribbit (focused on fintech) was there, along with QED, Tiger, SV Angel, and Founders Fund — and most notably, Felicis Ventures (also in Plaid!) invested across multiple rounds of Credit Karma out of earlier, smaller funds.
5/ Looking Around The Corner: All of this recent activity begs the question, “What is the next fintech startup to be acquired in a blockbuster deal?” Will someone scoop up Chime, which truly broke out over the last 12-18 month? Will E-Trade going out at $13B set the floor for a potential bid on Robinhood? And, what about all the neobanks worldwide which are also growing? And, we can’t forget about all the trading and investment infrastructure products and services out there, too — those could be gobbled up for hefty sums. Perhaps most earth-shattering would be a bid on Coinbase? It wasn’t too long ago that Facebook bet 2% of their market cap at the time on Oculus — that may or may not pan out. Regardless of your politics regarding cryptocurrencies, there is no denying that Coinbase boasts incredible market position and high transaction volume helping millions of people buy and sell Bitcoin and other select tokens. Coinbase has had the revenue for a few years go to public, but it is in a very new category — and could be a fascinating takeover target. If that happens, I expect Twitter to break and I’ll be there for it. Ok, off to bed.