The Fintech Unicorn Reimagined: What Happens When the Stars Don’t Align
Only 0.1% of all businesses are valued over one billion dollars. An overwhelmingly large number of the remaining 99.9% are small businesses employing less than 500 employees. If I told you that there are new startup companies with little to no operating history that have a valuation in excess of $1 billion, it might seem difficult for you to believe or to understand how. But they do exist.
In the fintech world, there are companies that have a market-disrupting strategy that allows them to raise substantial private equity monies and create a perceived value at or above a billion dollars. How is this possible? The answer is simple, but the path is very difficult. These organizations, widely regarded as Fintech Unicorns, have developed a solution or service that, if all the stars properly align, will create a market solution expected to generate revenues and profits justifying such valuation.
What stars need to be in alignment? Here are just a few:
- Private funding sources – Large private equity firms pool their funds together in exchange for a supposed value in a startup company. As the funds are depleted, more cash calls are required. In today’s market uncertainty, the available cash or the perceived market value may become very volatile.
- Solution creation resources – These fintech unicorns consume enormous amounts of cash. The creation of a market-disrupting solution likely takes a massive amount of research and development resources. Projects of this size normally require more time than initially expected.
- Sales and marketing efforts – A Fintech Unicorn burns cash quickly in order to get their brand to the market. To get name and brand recognition, many have chosen high profile paths like entertainment and sporting events in the past. Today, most of these events no longer happen. The Fintech Unicorn is desperately seeking other avenues.
- Funding partners and management alignment – A tremendous amount of time and energy are focused on ensuring that management is in sync with its investors. Many times, these relationships can be less than harmonious resulting in a loss of focus, drive, and motivation.
What happens when these stars don’t align? What happens when we experience a major market disruption, like a pandemic? What are these Fintech Unicorns to do? Cut spending? Where? Research and development? Sales? Marketing? It is likely they have little to no business to sustain them through tough times. What if their private monies diminish (or worse, dry up)?
Let’s now look at the flip side. A different kind of fintech company. One with stars that have been in alignment and that continue to be in alignment:
- Self-funded, employee controlled – This type of fintech answers to no one but its clients and itself.
- Solution Focused with Innovation as Priority – This fintech has a long track record of providing established solutions to the marketplace, while also prioritizing future enhancements and new technology based on market needs. They are upsizing instead of downsizing.
- Sales and marketing efforts – This fintech focuses on aligning its marketing brand and sales message to align with the market without an “in your face”, get-the-sale-done mentality.
- Ownership and management alignment – This fintech is this fintech. In other words, this fintech doesn’t have ownership and management alignment issues because, by its nature, it is already aligned. These two are one and the same.
So, as a financial institution looking to better serve its investing client base, how are you going to find and detect a stable, well-regarded, self-sustaining set of solutions? The right fintech firm will be able to share a proven blueprint on how they respond to past and future market evolution, adapt to fulfill the needs of your client base, and maintain operations through volatile and uncertain market shifts.
To learn more about choosing the right fintech partner, download our infographic below.
The Emergence of a True Fintech Unicorn
First Rate has been an industry leader in surviving and thriving during times of distress. Download our infographic to learn how!
Terry Gaines joined First Rate in 2000. He works closely with customers and other experts in the industry to anticipate the needs of the performance measurement industry. In addition to his role at First Rate, Gaines serves his community through leadership positions with the Arlington and National YMCA, The Levitt Pavilion for the Performing Arts. The Arlington Chamber of Commerce, Junior League of Arlington and Leadership Arlington.