Reaching a $1bn valuation is not the rare occurrence that the term 'unicorn' would suggest, as many Asian fintechs can attest to. As such, there is now a whole industry built around helping start-ups to achieve this goal.
When venture capitalist Aileen Lee coined the term ‘unicorns’ for $1bn-plus companies in 2013, there were just 39 of them in existence. They were so rare that they were akin to being a mythical creature. Now, less than a decade later, the number of these unicorns is steadily growing, especially in the continually evolving fintech space.
Across all sectors, 136 start-ups became unicorns globally during the first half of 2021 alone, according to CB Insight’s latest State of Venture report. Funding has soared this year, reaching $156.2bn by the end of the second quarter — a 157% increase year-on-year.
There is the fear of missing out. No one wants to miss the next Tesla, Amazon or Google
The number of fintech unicorns has also continued at pace. According to FintechLabs, 228 fintech companies established since 1999 have reached unicorn status, including exits, as of September 2021. August alone added 26 to the list.
While the US boasts the highest number of fintech unicorns for a single country, there are interesting trends in other regions. In Asia, for example, clusters of unicorns are concentrated in certain geographies.
Willie Tanoto, director of Asia-Pacific financial institutions at Fitch Ratings, says: “In north-east Asia, especially around China, you’re seeing a stampede of unicorns... so it’s not that rare anymore.”
Willie Tanoto, Fitch
In China, this includes China UnionPay, WeBank and Ant Technology. The latter, with a valuation of $150bn, is the third-largest overall in valuation in the FintechLabs listing behind PayPal and Shopify. Other Asian countries are seeing an increase in unicorns — most notably India, with 12 companies making the cut. Indonesia, Singapore, Japan and Vietnam also all boast several of their own.
As those markets like China reach maturity in their fintech offering, it is these other countries that are proving to be the most fertile ground for new unicorns. George Windsor, head of insights at entrepreneur network Tech Nation, says: “The vast majority of fintech unicorns in China were created between 2015 and 2019, while elsewhere in the world it has been more focused between 2018 and 2021. During 2021, in particular, there has been a growth trend in unicorn creation overall.”
This increase in numbers is in part thanks to the current levels of liquidity providing ample resources to invest. The Tech Nation Report 2021 highlights the countries with the highest levels of venture capital investment into tech companies. China, with $44.5bn invested during 2020, ranks behind the US, with $144.3bn. India is placed fourth with $13.3bn in investment.
Francisco Alvarez-Demalde, founding partner at private equity firm Riverwood Capital, says market conditions have led to a focus in investment attention. “The decrease in interest rates has created a significant liquidity expansion globally. And the impact of Covid has increased demands for these [fintech] businesses. All of these things together have created a rush towards investing in the fintech space, and there is a lot of capital available,” he says.
The making of a unicorn
Even with considerable levels of capital ready to hand, investors are not simply throwing money into projects. They want to see clear evidence of how the company is growing.
In July 2021, Singapore business-to-business (B2B) payments platform Nium announced it had received $200m in Series D round funding, taking it over the $1bn threshold to join the unicorn club. The funding was led by Riverwood, and attracted investment from the likes of Temasek and Visa. It was not the first time the company had been in touch with Riverwood.
Prajit Nanu, co-founder and CEO at Nium, explains the process of obtaining investment: “Riverwood initially said ‘no’ to us in 2019, as they wanted to see us build out some areas of the company. They stayed in close contact, though, and in 2020 they came back. At the time, we declined because we wanted to focus on achieving a few key milestones.
“Then, in January 2021, they reached out for another update. We were happy to share that the areas of the business they’d asked us to build out in 2019 were complete, and within a week we had a term sheet in hand. They’d been tracking the company for 18 months, and were pleased to see such strong and steady progress.”
Riverwood works with companies that are seeing up to $50m in revenue and are looking to reach the next phase of $500m, with a focus of scaling up operations that are already proving successful by helping them to identify what aspects of their services to prioritise, as well as which geographies to cover.
Mr Alvarez-Demalde says: “We focus on companies that are already in the phase of scaling. These businesses are sustainable and provide a clear value proposition to their clients and customers. It is not the typical venture journey, which is about finding a new business and growing it. It’s more about taking something that works and helping these companies to scale and grow.”
The potential for sizeable returns from backing companies before they hit unicorn level is also a driving force, especially in the fintech space, where the developments can be particularly transformative.
“For a lot of funds investing in fintech, there is the fear of missing out. No one wants to miss the next Tesla, Amazon or Google,” Fitch’s Mr Tanoto says. “But I think the underlying appeal is that many are offering the promise of oligopolistic or monopolistic profits in the future, when they become dominant enough.”
While many fintech unicorns are seeing huge valuations, the projected values are warranted due to the speed at which they have grown and the pivot towards digital services predicated by the pandemic. Claudio Alvarez, partner and head of fintech at technology advisory and investment firm GP Bullhound, says: “Investors are becoming more comfortable with fintechs, as there has been a proven use-case now for so many over the past five years or more. We have seen funding rounds increase in size. We have also seen some venture capital/trusts that are now looking to invest in disruptive technologies as a commercial proposition.”
Supporting growth
As the fintech space has increased to such a massive scale, an industry has emerged focusing on helping them to reach their growth ambitions. UK-based Tech Nation provides services and support to tech companies across a range of sectors to help them to reach their potential. The company recently closed its fourth round of applications for fintechs to participate in its six-month programme, which includes educational sessions and networking.
“We have scale coaches — current or former founders and CEOs — who can talk through the challenges or how they scaled up their own businesses,” Mr Windsor says. “As a company, we act as a curator of these relationships to make sure companies are able to access the best people to help them.”
Supporting these fintechs on their path to becoming unicorns requires more than financing. Investors can work as a mediator, connecting entrepreneurs with the best counterparts to help them expand. Gaurav Singh, founder of India-focused start-up investment bank JPIN Venture Catalysts (JPIN), says: “We find the people who can provide the most support, such as CEOs of banks, fintech leaders or experts in the region, and bring them into the round but also on to the advisory boards. Globally, we can help to underwrite capital for future growth.”
Reaching the status of unicorn also has the less tangible benefit of helping to attract employees, which can be essential in helping start-ups to meet their next set of expansion goals.
“Unicorn status now is a validation that a company is on a good path. Banks and clients would have worked with us regardless, so I wouldn’t say that achieving unicorn status raises our profile or instantly brings on more customers. The real value is that it gives us a level of credibility to hire the best talent,” Mr Nanu says. “It’s a basic threshold for a lot of people wanting to work in the industry. For younger companies, it is difficult to attract the best talent as sometimes this can be seen as a career risk and is treated with more hesitance.”
Mr Windsor adds: “One of the key considerations is making sure that these growing companies have the right access to talent. It’s important to think of domestic talent and training, and making sure we continue to attract the best people from around the world.”
Recognising the difficulties faced by some individuals moving geographies, Tech Nation has developed a programme to assist with visa applications, acting as an independent endorsing body with a judging panel to adjudicate applications.
The next generation
The global expansion of fintechs is helping foster the growth of experienced talent, which is no longer concentrated in the established innovation hubs.
Mr Alvarez-Demalde says: “We are now seeing a very interesting global dynamic where companies are not just coming out of Silicon Valley, Israel or China. There have been companies from Latin America and south-east Asia that have become leaders in their space. It’s exciting to see this globalisation of technologies.”
There are also several fintech unicorns in Africa, while others are showing strong promise. During September 2021, Senegalese mobile money company Wave announced the largest round of Series A funding for an African company. The company allows customers to transfer funds without the need for a bank account, as the funds are transferred through a network of small businesses operating as agents. Since its launch in 2018, Wave has grown to become the largest mobile money provider in Senegal and is now expanding in Côte d’Ivoire.
Francisco Alvarez-Demalde, Riverwood Capital
“The company raised $200m in Series A funding. This is really important as these companies are bypassing the traditional financial infrastructure,” Mr Alvarez says. Wave has been valued at $1.7bn.
For those that have hit unicorn status, the next goal in sight is to become a ‘decacorn’, with a $10bn-plus valuation. FintechLabs’s ranking lists 33 fintechs at decacorns level (or higher) to date. Among the fastest to reach this level is South Korea’s KakaoBank, which launched in 2016 and is valued at $28bn.
However, for the investor community the aim is to identify these companies before they even reach the unicorn level. Mr Singh says: “We have worked with a [India-based] start-up called CASHe, which has the potential to become a decacorn. It is a neobank focused on social lending, providing loans quickly using artificial intelligence. JPIN has committed capital to it and is running the fundraise alongside Rothschild, focusing on its Series B $150m round. From there we will look towards Series C, and the intention of expanding the service across Sri Lanka, Bangladesh, Africa, Europe and eventually globally.”
For newly minted unicorns, there are greater ambitions in sight. Nium’s Mr Nanu says: “We are on a great track to an initial public offering in the next 24 months. The way Nium is structured, we are looking to decentralise our business. Each region will have its own regional management to drive the business. We are on a mergers and acquisitions spree, and have recently made two strategic acquisitions — travel B2B payments leader Ixaris, which added comprehensive virtual card issuance capabilities to our platform, and Wirecard Forex India, which gives us greater reach into India’s booming payments market. We will continue to acquire new technologies and companies that will allow us to aggressively expand our product set over the next six to 12 months.”
The Grab effect
Among the powerhouse of tech unicorns in Asia is Grab, the Singapore-based ride-hailing app that expanded to cover food delivery and now financial services. The company’s joint venture with telecoms provider Singtel was one of four companies to be granted a digital banking licence by the Monetary Authority of Singapore (MAS) in December 2020. The new bank has been developed to target young professionals, managers, executives and technicians, gig workers, and micro-, small and medium-sized enterprises — areas which it believes is currently underserved.
There will be considerable investment to come, according to Janice Chong, senior director for Asia-Pacific corporates at Fitch Ratings. “The digital banking licence in Singapore for the Grab and Singtel joint venture will only start in 2022, so it’s still in its early stages,” she says. “We are expecting to see a progressive increase in capital, from a minimum paid-up capital of S$15m ($11.15m) in the initial stage to about S$1.5bn, when the consortium gets its full digital banking licence over the next five years. Certain regulatory conditions have to be met before MAS will approve an increase of the aggregate deposit cap. The regulator will assess the digital bank’s performance, such as strength of internal controls, compliance record, customer management ability and sustainability of business performance.”
Ms Chong notes these companies have the benefits of scale. Grab already has a strong market presence between its business strands, while Singtel has access to more than 740 million customers across 21 countries.
The expansion of Grab may well be creating a blueprint for how fintechs can grow to become leading global companies. During March 2019, Grab picked up $4.5bn in a funding round, with $1.5bn coming from the SoftBank Vision Fund. The company has made clear its aims to develop a ‘super app’ that can be used by customers for multiple services.
The decrease in interest rates has created a significant liquidity expansion globally
It was announced in April 2021 that the company would go public in New York through a special-purpose acquisition company partnership with Altimeter Capital Markets. While plans for a July listing were scuppered by the pandemic, Grab says it is still on track to launch by the end of 2021. It forecasts a $180bn total accessible market opportunity in south-east Asia by 2025, covering its ride-hailing, online food delivery and digital wallet offerings.
A Grab spokesperson says: “We had been preparing to become a public company for some time, and it became clear that partnering with the Altimeter Capital Markets platform would put us in a strong position over the long term. Firstly, the process gave us an opportunity to build a solid day-one cap table with a shareholder base that will join us for the long haul. Secondly, Altimeter is a terrific partner for us — they believe in Grab and are making a sizeable investment in our future, which includes a three-year lock-up of their sponsor-promoting shares.”
The development also puts Asia on the map as a place of considerable opportunity for international investors. “We’re proud to represent south-east Asia on the global public markets,” the Grab spokesperson adds. “This step validates the south-east Asian market opportunity and our super app’s ability to deliver on both bottom lines: financial and social impact. We believe we’re in the best position we can be to go public. We’ve grown rapidly and consistently, while keeping our focus on ensuring the long-term sustainability of our business.”
