The inevitability of fintech’s trajectory

"We are in the midst of an all-out war that we have already won using unconventional means like AI/ML and all of these incumbents are ‘dead men walking’," writes Dovi Frances of Group 11

Dovi Frances 08:5017.08.21
Earlier this week I spoke with a young VC who was touting his performance and the couple of recent unicorns he had invested in “back in the day” circa 2019.


Following that meeting, I intended to write a quick post about how crazy it is that we now have 785 tech unicorns with a cumulative value of $2.5 trillion. So much that almost all VCs, even this young VC, are starting to look like heroes. (On paper that is..)


I then forgot about it and when I came to revisit the draft I noticed that the number has grown over the past few days to over 790 tech unicorns.


Crazy isn’t it?


I think it would be prudent to assume that the valuation of 30–40% of the companies in the unicorn list is unwarranted, driven mostly by investors making bold bets at 100X early ARR numbers in companies that have yet to prove their unit economics, strength of c-suite, product-market fit, etc.


Dovi Frances. Photo: Group 11 Dovi Frances. Photo: Group 11


Every investor with capital can crown a company a unicorn. With over 3,000 VC funds globally and thousands of other Family Offices and Institutional Investors dumping yield-deprived-capital into the technology sector with varied degrees of discretion, talent, wisdom and experience - anyone with a pulse nowadays can essentially crown a unicorn.


And It shows..


Notwithstanding the above there is one fundamental and undeniable truth we should all bear in mind during these (frothy) times.


I will use an analogy here - just because a few lakes, ponds and swamps in the ecosystem are contaminated, it doesn’t mean that the ocean is not blue.


Let’s take fintech as an example as it is Group 11’s and my subject matter expertise. About 20% of the global Unicorn list is comprised of fintech and fintech adjacent companies. This sums to about $500 billion / $0.5 trillion in cumulative market cap.


Now look at established publicly traded financial services players globally and sum their market cap and you will get $15 trillion. Interestingly, over 60% those companies are over 50 years old.


Wells Fargo for example is trading today at a market cap of about $200 billion, Bank of America at a market cap of $350 billion and just between these two you have the TOTAL cumulative market cap of ALL fintech insurgents.


Think about it?


Wells Fargo, founded in 1852, on all of its 80K branches, 270K employees, 9-5 working hours, credit processes taken from the days of Ancient Rome, awful customer service that “delights” its clients with a -2 NPS and Bank of America that only competes with being worst with a -24!! NPS are worth together as much as all of global fintech.


I can keep going and talk about AIG, Citi, Morgan Stanley, Syncrony, and hundreds more but you get the idea.


We are in the midst of an all-out war that we have already won using unconventional means like AI/ML and all of these incumbents are ‘dead men walking’. They might even know it.


Over the next decade the giants we know today will be devoured by fintech. By the same fintechs that are already part of the global unicorn list and that will soon join that list.


Financial engineering, in the form of unicorns or SPACs, is here to stay for the foreseeable future. But let us not forget that at the end of the day, the guards are changing and that the brightest minds in the world are working to improve almost all financial products and processes.


A prolonged discussion about ‘insane’ unicorn valuations won’t change the ultimate outcome - The gap from fintech’s $0.5 trillion cumulative market cap to traditional Financial Service Industry’s $15 trillion cumulative market cap may seem to be further away than what it really is.


We should all remember that true disruption is always accompanied by exponential growth.


There will be no warning shots fired, this all-purpose war was already won and the change may appear one day as sudden as a plant bursting through the concrete.


So while it has taken established financial institutions almost a hundred years to grow linearly and evolve into their current market dominance, fintech is merely a decade away from completely taking over.


You just need to choose whether you believe it today or believe it only once the change has taken place and is visible to all.


Dovi Frances is the General Partner of Group 11