So much fintech M&A • TechCrunch
Welcome to The Interchange! If you received this in your inbox, thank you for signing up and your vote of confidence. If you’re reading this as a post on our site, sign up here so you can receive it directly in the future. Every week, I’ll take a look at the hottest fintech news of the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there and it’s my job to stay on top of it — and make sense of it — so you can stay in the know. — Mary Ann
On Friday, January 13, investment giant BlackRock announced it was acquiring a minority stake in SMB 401(k) provider startup Human Interest. Terms of the deal weren’t disclosed, but it definitely caught my attention for a few reasons. For one, as one source told me, BlackRock’s investment is a show of faith in the SMB 401(k) market — one where the firm hasn’t historically played. That same source, who preferred not to be named, pointed out that “SECURE 2.0’s auto-enrollment provisions (among others), will make 401k plans more impactful at the lower end of the market, and Human Interest is well-positioned to execute.”
I’ve been writing about Human Interest since March 2020, covering each of its funding rounds since then (here, here and here), and following its impressive growth. It achieved unicorn status in August 2021 and at the time was eyeing an IPO. A lot has changed in the markets since then, so this feels like a good outcome for the startup, which was founded by Paul Sawaya and Roger Lee in 2015. Lee (a very nice guy, incidentally) moved on years ago, recently founding another startup, Comprehensive.io and launching layoff tracker Layoffs.FYI soon after the COVID-19 pandemic hit.
The deal was just one of many M&A deals in the fintech space that occurred last week. Here’s a rundown of some others:
- Remote payroll startup Deel acquired fintech Capbase for an undisclosed amount in a cash and stock deal, the companies shared with me exclusively. Last valued at $12 billion, Deel is one of the buzziest fintechs around, and its decision to pick up Capbase reflects its intent to enter the equity management space.
- Investment giant Fidelity acquired Shoobx, marking its first buy in 7 years (!). Jason Furtado and Stephan Richter founded Boston-based Shoobx in 2013, according to Crunchbase. The pair went on to raise a known $10 million in funding for the company. Fidelity said its purchase of Shoobx is a sign of its commitment to the private market “and will help to satisfy an increasing demand Fidelity sees from private companies to support them as they scale and grow.”
- Vouch, an insurtech focused on startups, acquired lending startup Level for an undisclosed amount. As reported by Life Insurance International: “Level has created a tech-driven underwriting process for early-stage fintech startups that is claimed to have brought new efficiency and speed to the debt-raising process. Vouch hopes to leverage Level’s expertise in developing underwriting technologies to underwrite and support complex insurance products. Level was founded by Vladimir Korshin, Asa Schachar and Molly Hogan in 2021.” In September 2021, I covered Vouch’s announcement of $90 million in new funding. Both Vouch and Level are Y Combinator alums.
- American Express announced that it has entered into an agreement to acquire Nipendo, a company that aims to automate and streamline business-to-business (B2B) payments processes for global businesses that has raised a known $12 million in funding. I talked with Dean Henry, EVP of global commercial services for Amex, and Colleen Taylor, president of merchant services, US at Amex, and they gave me some insight into the strategy behind the buy. For starters, Henry said the credit card giant has been on “a multiyear journey…to really grow and expand capabilities in B2B payments.” He added: “What we’ve really tried to evolve in the last few years is into a one-stop-shop for businesses to pay anybody anywhere, using any kind of payment rails that they want to use in order to facilitate the payments….What we’re trying to do with Nipendo is add to that capability set and provide more value to suppliers who are trying to send invoices, interact with buyers and transact with data around B2B payments.” Notably, Taylor told me that American Express concluded that it would take a big company like American Express “a long time to replicate what they’ve built.” And this line was the classic motivation for all incumbents buying fintechs: “Why not just bring it in to our platform and get it to customers as quickly as possible?”
To bring some context around all this M&A, I conducted an email interview with Jonah Crane, partner at Klaros Group. Crane predicts we will continue to see a lot of fintech M&A.
He told me: “The question I have is who will capitalize on this bear market to scoop up valuable technology or talent. In particular, I’m interested in whether banks can be opportunistic. Some of the large banks have already been active, and the others need to ask themselves whether they are serious about innovation and digital transformation. If they are, they can’t afford to miss this moment.”
Of course, he added, much will depend on the macro picture. “If we have a soft landing, and markets head back up, the true bargains may already have passed. And if we are in for a very hard landing, buyers are at risk of catching falling knives—especially in the credit sector,” Crane said. “Getting deals done in these markets is no sure thing. We’ve already seen a number of announced deals fail to close: UBS/Wealthfront, Bolt/Wyre, and now JPMC/Frank (more on that later). Ultimately, the big challenge will be whether buyers and sellers can cross the massive valuation chasm created by the bursting of the fintech bubble.”
No doubt the venture slowdown and practically dead IPO and SPAC markets have contributed to the surge in M&A activity.
“VCs are telling their portfolio companies they should be prepared to shelter in place for 18 to 24 months, and many have laid off a lot of staff. But what’s the end game? What are you aiming to achieve that will allow you to raise at a reasonable valuation when markets are fully reopened?” Crane asks. “Those who don’t have a clear bridge to the other side of that chasm will be looking for buyers (if they’re smart).”
All I know is if we have more weeks like this one, you’re going to have one exhausted fintech journalist on your hands!
Reports Jagmeet Singh: “Greenlight, a fintech startup offering debit cards to kids, has laid off 104 employees — or over 21% of its total headcount of 485 employees — to “better align with ongoing operating expenses” amid the economic slowdown. TechCrunch learned about the layoff that was announced to its employees earlier this week. The startup later confirmed the development over an email.” More here.
Digital mortgage platform Blend said last week its slashing its U.S. workforce by 28%, or 340 jobs, in its fourth layoff in less than a year. The company also said that president Tim Mayopoulos will step down from his role in the first quarter and remain as a board member. Clearly, the rise in mortgage interest rates has taken its toll. More here.
Publicly-traded online lending platform Lending Club is cutting 14% of its workforce, a move that will impact 225 employees, reports MarketWatch, “as higher interest rates discourage demand for loans, and the company forecast fourth-quarter revenue that was below expectations.”
In other news
Public.com, an investing platform with more than 3 million members, announced last week that it has begun rolling out Treasury accounts through a partnership with fintech startup Jiko. According to the two companies, the accounts allow members to invest their cash in U.S. Treasury bills that “are automatically reinvested at maturity and can be sold at any time.” A spokesperson told me that Public’s Treasury accounts “offer members similar flexibility to a high-yield savings account, but are currently offering even higher yields.”
Equity management platform Carta had a rough week. As TC’s Connie Loizos reported on January 11: “The 11-year-old, San Francisco-based outfit whose core business is selling software to investors to track their portfolios, has sued its former CTO, Jerry Talton, who the company says was fired ‘for cause’ almost three weeks ago, on Friday, December 23.” The case is a bit of a sordid one, considering that “toward the end of Carta’s long list of accusations against Talton, Carta says that Talton both sent and received ‘sexually explicit, offensive, discriminatory and harassing messages with at least nine women including during work hours and on Carta’s systems.’” For his part, Connie also wrote that Talton was put on administrative leave in October of last year after submitting a letter to Carta’s board of directors, flagging various “problems” with the company’s culture. Then, Natasha reported later that day that the company, which was last privately valued at $7.4 billion, had cut 10% of its staff.
It looks like incumbent banks and institutions are still struggling when it comes to offering tech-enabled financial services.
For one, Goldman Sachs Group reported last Thursday that it lost $3.03 billion on its platform solutions business that houses transaction banking and credit card and financial technology businesses since 2020. Reuters reports: “The disclosure did not provide separate numbers for its direct-to-consumer business, Marcus, which was moved into its asset and wealth management arm. Marcus has also lost money and failed to introduce a checking account. Swati Bhatia, who led the group, stepped down earlier this month, according to an internal announcement seen by Reuters.”
Meanwhile, Wells Fargo is taking a step back from mortgages. CNBC reported: “Instead of its previous goal of reaching as many Americans as possible, the company will now focus on home loans for existing bank and wealth management customers and borrowers in minority communities.” Interestingly, in an interview with CNBC, CEO Charlie Scharf acknowledged that the bank “will need to adapt to evolving conditions” while remaining confident about its competitive advantage. Specifically, he said: “Given the quality of the five major businesses across the franchise, we think we’re positioned to compete against the very best out there and win, whether it’s banks, nonbanks or fintechs.” To me, it feels like the move to shrink back from the housing market might open up more opportunities for fintechs.
Lastly, as referenced above, Forbes reported on an absolutely crazy account of JPMorgan basically getting duped by the founders of a startup, Frank, that it acquired for $175 million. Here’s an excerpt from the Forbes piece detailing a lawsuit filed by the banking giant, which claims that founder and former CEO Charlie Javice “pitched JP Morgan in 2021 on the ‘lie’ that more than 4 million users had signed up to use Frank’s tools to apply for federal aid. When JP Morgan asked for proof during due diligence, Javice allegedly created an enormous roster of ‘fake customers’ — a list of names, addresses, dates of birth, and other personal information for 4.265 million ‘students’ who did not actually exist.” In reality, according to the suit, Frank had fewer than 300,000 customer accounts at that time.” Oof. What happened to due diligence here???
According to research from Utility Bidder, there are said to currently be over 700 active unicorn companies in the U.S., 132 of which are in the fintech industry. The firm’s new study has revealed the global fintech companies achieving the $1 billion valuation mark the fastest. Proptech Pacaso tops the list, taking just under six months to achieve unicorn status. Other companies on the list include Magic Eden, Clara, Brex and Pipe. The firm also ranked the most valuable fintech companies. Leading the way is Stripe, which actually just got another internal valuation cut and laid off over 1,100 workers last November. Ironically, a number of other startups that made the top 10 also happened to conduct layoffs over the past few months, including Plaid, Brex and Chime. Wondering why Utility Bidder cares about fintech? I did, too. Here’s what a spokesperson told me: “Utility Bidder [is] a price comparison site for energy and utility rates, so they have a focus on business finances as well as energy as a whole.”
Identity decisioning platform and fintech unicorn Alloy recently released its annual State of Fraud Benchmark Report. The report found that 70% of financial institutions surveyed lost over half a million to fraud last year and that 27% of respondents lost over $1 million to fraud in the last 12 months. Further, 37% of fintech companies and 31% of regional banks estimated losing between $1 and $10 million to fraud.
A Morgan Stanley spokesperson reached out to me last week after seeing our coverage of Fidelity’s acquisition of Shoobx to let me know that “Morgan Stanley at Work has invested a lot of time and resources” in its Private Markets business, “and continues to see it as an area of growth — especially as we recently just saw an astounding uptick in liquidity events during Q4 2022, which further supports the idea that private companies/startups need an effective software solution to handle these complex transactions.” The firm acquired Solium, a cap table management solution platform now called Shareworks, in 2019.
Oracle Retail announced last week its new Oracle Retail Payment Cloud Service. Via email, a spokesperson told me: “This new service equips retailers with a fixed rate model and the ability to accept all major contactless payment options including credit/debit cards and mobile wallets — all without hidden fees, long-term contracts or minimum monthly requirements. These benefits enable increased flexibility, agility and greater transparency for retailers of all sizes and industries…”
Mesh Payments has brought on Daniel Ochoa as its first SVP of global sales. Based in Austin, Ochoa most recently served as VP of sales and customer success at TripActions. Mesh co-founder and CEO Oded Zehavi told TechCrunch via email that Ochoa was brought on “to leverage a surge in customer demand” as the company builds out “new services to meet the needs of larger companies who are more than ready to move off of legacy spend management solutions.” Sounds like Mesh, like competitor Brex last year, is going after more enterprise customers.
Speaking of Brex, here’s a fun tweet thread from former CRO and current Founders Fund partner Sam Blond about “the best outbound campaign” Brex ever ran.
Funding and M&A
Seen on TechCrunch
From cloud computing to proptech: DigitalOcean co-founders raise $29M for Welcome Homes
Backed by Tiger Global, Mayfair emerges from stealth to offer businesses a higher yield on their cash
Vista Equity Partners to acquire insurance software company Duck Creek for $2.6B
Dubai-based social investing startup InvestSky picks up $3.4M pre-seed
Proptech that offers fractional home ownership to wealthy individuals raises $30M in debt and equity
Pagaya Technologies announces acquisition of Darwin Homes
Canadian fintech Nuvei will acquire Atlanta-based payments firm Paya for $1.3B
40Seas secures $11M in equity, $100M in credit to grow cross-border trade financing platform
Butter raises $22M led by Norwest Venture Partners to end accidental payment churn
Other stories I wrote this week:
These 5 companies bootstrapped their way to big businesses while VCs came knocking
Sam Bankman-Fried launches Substack: ‘I didn’t steal funds, and I certainly didn’t stash billions away’
And, I recorded Equity Pod with my incredible co-hosts Natasha Mascarenhas and Rebecca Szkutak: Frank-ly, the Kardashian method won’t work for SBF
Whew. This was one of the busiest weeks we’ve seen in a while. Hope those of you in the U.S. have a good and restful long weekend, and if you’re outside of the U.S., I hope you have a good and restful weekend as well. Until next time, take good care. xoxoxo — Mary Ann