Apr 9, 2021

Is there a business case for funding a loss-making fintech?

Altus
Fintech
Digital
Deliveroo
Peter Stonham, Digital Consult...
4 min
Peter Stonham, Digital Consultant at Altus, examines the wisdom of funding a loss-making fintech and what 'value' in the digital era actually means
Peter Stonham, Digital Consultant at Altus, examines the wisdom of funding a loss-making fintech and what 'value' in the digital era actually means...

Deliveroo joined the list of companies receiving huge valuations at their IPO last week, started trading at a company valuation of £7.6bn. Whilst this is down from their previously anticipated value of up to £8.9bn, it still represents the biggest IPO offer on the London Stock Exchange since THG in September 2020. Regardless of what happens to the stock in the hours and days post-launch, this is a measurable display of the value of the company at the point of offering.

Looking at the headline numbers of the company though, you’d be forgiven for questioning why it has been valued so highly. After many years of increasing losses, Deliveroo turned profitable on an operating basis for the first time in 2020, arguably thanks to the increase in use by those affected by the Coronavirus pandemic and stay-at-home orders in countries around the world. Still, the company posted an underlying loss of over £220m.

This isn’t a one-off story. Last year’s heavily reported flotation of The Hut Group told the same tale. Three-quarters of the most highly valued venture-backed companies which went public in the US in the latter half of 2020 were posting losses in excess of $100m. Fintech companies are no exception to this practice; just this week PensionBee confirmed its intention to float at a value of at least £300m, despite recording a net operating loss of £6.9m last year.

Yet these companies are still able to attract investment, either from venture-capital investors or on public markets. People see the value of the company in terms of its data, its access to wide markets or its proprietary technologies more so than in its ability to turn a profit. 

Data – and how it is used – is widely seen as an area of most value to businesses, but with the large volumes of data required within Financial Services, are businesses making the most use of it? Successful businesses will make decisions based on logical analysis of their data, rather than relying on qualitative input alone. Deliveroo uses their data to great effect, driving efficiency in their delivery operation through quantitative analysis and prediction of issues, made possible by machine learning models and real-time operational monitoring.

Another area of significant value is the access to the market that a company has. This is seen particularly in the social networking sector. Access to the market is intrinsically linked to a product’s ease of use – are you offering your customers simple and convenient ways of using your product? Deliveroo has certainly been successful with its access to the market, with user-centric, mobile-first user front ends. Core to this is allowing users to access a product in the way that suits them at the time they want to use it.

The third pillar of value to consider is how integral a company can be to the core workflows of others – and therefore how necessary others consider it. Open Banking is becoming ever more core to the propositions of a number of FS institutions across the UK and is no longer the preserve of fintechs (through desire) and retail banks (through legislation). One of the primary players in the Banking Integration market, Plaid, was recently valued at $15bn (according to a Financial Technology Partners report on Open Banking). Collateral from the US Department of Justice suit to block Visa’s acquisition of Plaid in 2020 shows that, in addition to Plaid’s declared business aims of bank connections and account validations, Visa executives saw value in the breadth of Plaid’s connectivity across a wide range of other areas. This would see them using Plaid’s position as a trusted provider of information integration and exchange, to set the company up for future expansion into different business areas.

Wherever your primary value lies, one thing is clear. The technology which supports it needs to be reliable, effective, and ready to scale. Solidifying your in-house knowledge, selecting your technology providers and capitalising on their offerings, and understanding the market integration points of your technical estate are all important steps to take as you run your business on a day-to-day basis, and all the more so when you’re preparing for external scrutiny.

So whether you’re among the world’s largest food delivery companies opening up to public investment, or you’re scaling up a fintech in the UK and starting a new funding round, the message is clear: the value of a company lies in so much more than your ability to deliver(oo) a profit. 

This article was contributed by Peter Stonham, Digital Consultant, Altus

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Jun 21, 2021

Amber Group Valued at US$1bn in $100m Funding Round

Fintech
AmberGroup
Investment
Cryptocurrencies
2 min
Amber Group has raised $100m in a fresh funding round led by China Renaissance bank, valuing the start-up at $1bn

Amber Group, a cryptocurrency financial services firm, has raised US$100m in a Series B funding round at a pre-money valuation of $1bn.

The funding round was led by Chinese investment firm China Renaissance, and other participants in the Series B include Tiger Brokers, Tiger Global Management, Arena Holdings, Tru Arrow Partners, Sky9 Capital, DCM Ventures and Gobi Partners. Existing investors Pantera Capital, Coinbase Ventures and Blockchain.com also joined in.

Michael Wu, co-founder and CEO of Amber Group said in a statement that the funding would be used to “expand global operations to meet client demand and develop market solutions for the world’s leading crypto investors and companies.”

“We’ve had record months over the past quarter across both client flow and on-exchange market-making volumes,” Wu said in a press release. “Our cumulative trading volumes have doubled from $250 billion since the beginning of the year to over $500 billion.”

Cryptocurrencies are becoming increasingly popular, with many people investing, although not everyone seems to know what they are investing in. Using survey data collected from 750 investors earlier this year, Cardify found that only 16.9% of investors who have bought crypto “fully understand” the value and potential of cryptocurrency, while 33.5% of buyers have either zero knowledge about the space or would call their level of understanding “emerging.”

 

Who is Amber Group?

Amber Group is a global crypto finance service provider with a presence in Hong Kong, Taipei, Seoul, and Vancouver. Founded in 2017, Amber Group services over 500 institutional clients and has cumulatively traded over $330 billion across 100+ electronic exchanges, with over $1 billion in assets under management. The company said that its assets under management, or AUM, reached $530 million in 2020, representing a 275% increase from the previous year. 

Instead of being a cryptocurrency exchange that allows users to trade individual digital coins, Amber Group CEO Michael Wu said the company is bringing a “private banking experience to the everyday customer.”

Their goal is to optimise investment flexibility, maximise investment returns and deliver long-lasting value for their clients. In 2019, Amber Group raised $28 million in Series A funding led by global crypto heavyweights Paradigm and Pantera Capital, with participation from Polychain Capital, Dragonfly Capital, Blockchain.com, Fenbushi Capital, and Coinbase Ventures.

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