Rise of the fintech unicorns

Unicorn valuations are companies that achieve a valuation of t $1 billion or more, based purely on fundraising. These kind of companies were once believed to only exist as a myth, but these days the amount of unicorns is on the rise. And every entrepreneur out there wants to become one. Fintech is one of the sectors that are becoming prominent in the unicorn club. Prosper recently raised $165 million from J.P. Morgan Asset Management, SunTrust Banks and USAA, among others, bringing its valuation close to $2 billion. Funding Circle is another marketplace lender which entered the prestigious club through its latest funding round from Blackrock and the Singaporean sovereign wealth fund Temasek.

This follows a long-range of unicorn valuations in fintech, with Square being the first fintech unicorn six years ago, followed by Lending Club, which opted for a public listing last year. These are just the beginning, and the fintech unicorn herd is growing rapidly. Paytm is the first Indian fintech unicorn, valued at $ more than $2 billion after receiving funding from Alibaba recently, and in the nordic region, Klarna is leading the way with a valuation of $1,4 billion. In addition to Funding Circle, Transferwise also achieved unicorn status based on its latest funding round from Andreessen Horowitz earlier this year. Together with Wonga and Monitise, the majority of UK-based unicorns are within fintech.

These are just a few of the fintech unicorns, and there is probably someone negotiating a funding round as we speak, adding another fintech startup to the list. Still, valuations in fintech is a risky business. Valuating software is hard enough, and with fintech we are talking a new level of complexity. I could go on about how traditional valuation metrics like DCF-models fall short when valuating fintech startups, but this subject deserves a future blog post of its own.