An old story tells us that the seven fat cows tend to be followed by that many lean ones, and so it seems that it would be wise for those of with funds at stake in FinTech to heed this sage advice.
The early madness that surrounded FinTech valuations has of late begun to grow a bit threadbare, with former high fliers such as Lending Club finding themselves in trouble, and the entire robo-advisor segment coming under question because of its inability to defend its space against incumbents. Even the better-managed early stars, such as SoFi, reportedly find themselves hard-pressed to unload their paper and are forced to resort to setting up captive hedge funds to take it off their hands. The payment space is vastly overcrowded, with profits for many of the more recent entrants being as scarce as unicorns once were. Because many of the players are still sitting on large cash hoards, the shakeout - that otherwise would by now have manifested - has instead become a slow-motion defenestration, but a defenestration no less real for its glacial velocity. In the valley of no profits, these cash hoards can postpone the inevitable for those players who have bad business models, and they may well disappear all the more quickly as these companies succumb to the twin temptations of buying market share and their equally ill-starred competitors. This state of affairs is enough to give sleepless nights to investors holding the once so exciting FinTech portfolios.
I am advancing the following 10 principles to help you strategize your way through the coming mini-Armageddon. In this post I will explore the first five. Part 2 will discuss the balance and the implications for planning your portfolio.
The early madness that surrounded FinTech valuations has of late begun to grow a bit threadbare, with former high fliers such as Lending Club finding themselves in trouble, and the entire robo-advisor segment coming under question because of its inability to defend its space against incumbents. Even the better-managed early stars, such as SoFi, reportedly find themselves hard-pressed to unload their paper and are forced to resort to setting up captive hedge funds to take it off their hands. The payment space is vastly overcrowded, with profits for many of the more recent entrants being as scarce as unicorns once were. Because many of the players are still sitting on large cash hoards, the shakeout - that otherwise would by now have manifested - has instead become a slow-motion defenestration, but a defenestration no less real for its glacial velocity. In the valley of no profits, these cash hoards can postpone the inevitable for those players who have bad business models, and they may well disappear all the more quickly as these companies succumb to the twin temptations of buying market share and their equally ill-starred competitors. This state of affairs is enough to give sleepless nights to investors holding the once so exciting FinTech portfolios.
I am advancing the following 10 principles to help you strategize your way through the coming mini-Armageddon. In this post I will explore the first five. Part 2 will discuss the balance and the implications for planning your portfolio.
