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Liquidity comes to private markets

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Liquidity comes to private markets

CartaX closed its first trading session.

Feb 8, 2021
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Liquidity comes to private markets

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Tweet of the week ๐Ÿฆ‰๐Ÿ†

Twitter avatar for @JohnStCapital
John Street Capital @JohnStCapital
0/ $PYPL CEO "A digital-first world is no longer our future. It's our current reality & it will forever change the way we interact across almost all elements of our lives... The pandemic has accelerated a digital wave of change across almost every industry by 3-5 years"
11:54 PM โˆ™ Feb 3, 2021
130Likes21Retweets

This was a big week for private market investors. CartaX, the private market exchange of Carta, closed its first trading session. The first issuer to trade was Carta itself. With nearly $100m in volume across almost 1,500 orders from over 400 market participants, the genie is out of the bottle. Secondary markets are here to stay.

Secondary markets provide much needed liquidity and is a natural progression for the industry as the money flowing into private companies increases. Price discovery and employee liquidity are two big benefits that Carta CEO Henry Ward wrote about on Medium.

VCs should be concerned, which is why a large number of them are Carta investors. As Henry mentions, once they have enough demand, why would a company raise another venture round with a lack of price discovery? Could CartaX be the platform that companies issue new shares on? With open access available to anyone who wants to buy shares, there is no preferential treatment for investment bankโ€™s best customers. Retail investors can finally get in on the action.

VCs will still be the first money in but interest in later stage investing is getting more competitive and CartaX only adds to the list of liquidity options for founders and employees. The primary cause is the abundance of capital and the rock bottom interest rates, everyone is searching for yield.

VC firms are raising larger funds, because LPs are throwing money at established firms, and can only put large checks to work in the latter growth stage. Hedge funds are getting increasingly involved as are traditional investment management firms like T Rowe Price, who used to be active at IPO are increasingly buying private shares earlier. Adding in retail investors and their power to organise ($GME) buying on CartaX, the bid for private shares is only going to increase.


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Funding ๐Ÿ’ธ

There were 45 deals in the fintech space across the US and Europe with total investment of $4bn. Some highlights are below.

๐Ÿ‡ช๐Ÿ‡บ Swiss wealth manager WealthArc secured $4m in funding from RJ Management.

๐Ÿ‡บ๐Ÿ‡ธ Stash raised a $125m Series G from Eldridge Industries and T Rowe Price.

๐Ÿ‡บ๐Ÿ‡ธ Routefusion raised $3.6m in seed funding led by Silverton Partners and included Plaid co-founder William Hockey.

๐Ÿ‡บ๐Ÿ‡ธ Vested Finance raised $3.6m in seed funding to help Indian investors access the US stock market from Inflection Point, Moving Capital, TenOneTen and OVO.

๐Ÿ‡บ๐Ÿ‡ธ Robinhood raised an additional $2.4bn, on top of last weeks $1bn, led by Ribbit Capital with participation from existing investors a16z, Sequoia, Index and NEA.

๐Ÿ‡บ๐Ÿ‡ธ Propel Ventures is set to receive $150m from BBVA, taking their commitment in the venture fund to $400m.

๐Ÿ‡บ๐Ÿ‡ธ Payments player Payoneer is going public via a $3.3bn SPAC.

๐Ÿ‡บ๐Ÿ‡ธ Balance, a B2B checkout platform, emerged from stealth with a $5.5m seed round from Stripe, Affirm, Lightspeed, Max Levchin and his VC firm SciFi VC.

๐Ÿ‡บ๐Ÿ‡ธ Divvy Homes raised $110m in a Series C led by Tiger Global and included a16z.

๐Ÿ‡บ๐Ÿ‡ธ Rightfoot raised a $5m Seed round led by Bain Capital Ventures and included BoxGroup and Plaid co-founder William Hockey who has been busy this week.

๐Ÿ‡บ๐Ÿ‡ธ Valon raised a $50m Series A led by a16z for its mortgage processing infrastructure.

๐Ÿ‡บ๐Ÿ‡ธ MoneyLion is in talks to go public via a SPAC.

Challenger Banking ๐Ÿš€

๐Ÿ‡ช๐Ÿ‡บ Scalable Capital is closing its D2C UK wealth management product as it focuses on its B2B partnerships with Barclays in the UK.

๐Ÿ‡ฌ๐Ÿ‡ง UK challenger business bank Cashplus has secured a full UK bank license as it seeks to start lending its deposits.

๐Ÿ‡ฌ๐Ÿ‡ง Revolut has signalled that its 2,000 employees will be able to permanently work remotely and is converting its office space into collaborative workspaces.

๐Ÿ‡ฌ๐Ÿ‡ง Seedrs and Crowdcube responded to the Competition and Markets Authority regarding their proposed merger, stating that rejecting the proposal could see both firms struggle to compete globally.

๐Ÿ‡บ๐Ÿ‡ธ Challenger brokerage firm Public, a Robinhood competitor, announced it was no longer going to participate in Payments for Order Flow (PFOF), a common industry practice where customer trades are sold and executed by a third party.

  • ๐Ÿ™Œ๐Ÿป FATP Take - Julie Verhage at Fintech Today covered this in detail here. While I understand the desire to differentiate and align with customers interests, PFOF is an industry wide practice and a large source of revenue. Asking for tips will not replace PFOF revenue. I think a better communication of the value of PFOF and the economics behind it would be the way to go.

Traditional Banking ๐Ÿฆ

๐Ÿ‡ฌ๐Ÿ‡ง NatWest is to convert all of its 16m cards to Mastercard in a big boost for the card network. NatWest joins Santander, First Direct and Monzo in Mastercardโ€™s corner.

๐Ÿ‡ฌ๐Ÿ‡ง Barclays is set to promote Smart Pension, the online pension provider that it is an investor in, to its business banking customers. Barclays is also rolling out digital receipts using Flux in its mobile banking app.

  • ๐Ÿ™Œ๐Ÿป FATP Take - You can read more about Flux in my Startup of the Week post from last week here.

๐Ÿ‡บ๐Ÿ‡ธ 70% of BofAโ€™s consumer customers are using online and mobile channels with features such as check deposits, digital lending, chatbots and P2P payments. Also, Scott Harkey suggested in Forbes that BofA is also working directly with Plaid through customer notifications of which third party sites have been linked to their BofA account.

Fintech Infrastructure ๐Ÿšง

๐Ÿ‡ช๐Ÿ‡บ Top European financial institutions are collaborating on security standards and best practices for using cloud technology in a boost for technology providers.

๐Ÿ‡ฌ๐Ÿ‡ง Low code fintech technology provider Naqoda has gone live with agricultural challenger bank Oxbury.

๐Ÿ‡ฌ๐Ÿ‡ง Yolt is expanding its AIS to support mortgage lenders

Payments ๐Ÿ’ฐ

๐Ÿ‡ช๐Ÿ‡บ Klarna released explosive growth numbers recently, with 15m US customers and 3.5m MAUs. With Affirm going public with less impressive numbers, it will be interesting to see the valuation of Klarna when it decides to go public, likely in 2021.

๐Ÿ‡ฌ๐Ÿ‡ง The FCA is set to regulate BNPL companies due to the concern of consumers racking up increasing debts. Possible changes include funding for free debt advice services, affordability checks and potentially the merchant needing authorisation as a credit broker.

๐Ÿ‡ฌ๐Ÿ‡ง The UKโ€™s Payment Systems Regulator is launching a consultation on the UKโ€™s New Payments Architecture (NPA), which is set to replace Faster Payments and Bacs with a purpose-built central infrastructure, due to concerns on cost and innovation.

  • ๐Ÿ™Œ๐Ÿป FATP Take - The UK is already somewhat ahead of other Western countries with its Faster Payments providing quick transfers within minutes but it is concerning to see progress for the next phase of payments innovation stall. Regulators want to avoid prohibiting innovation with a costly centralised solution with little added value to consumers.

๐Ÿ‡บ๐Ÿ‡ธ PayPal announced its strongest ever quarterly growth in volume, with $277bn in 4Q 2020. However, its not all good news as they announced are quitting the competitive Indian payments market

  • ๐Ÿ™Œ๐Ÿป FATP Take - The Tweet of the Week thread quoting PayPal CEO really demonstrates how the race to re-bundle, of not only financial services but all digital services, is on. PayPal seems to be out front with the widest variety of products (merchant payments solutions and QR codes, consumer payments via Venmo and Pay in 4, shopping via Honey and crypto) and is well positioned. However, I still donโ€™t like to use PayPal (ex Venmo but mostly because friends use it) mostly because itโ€™s UX. The challenge to create a unified experience is huge but hopefully not insurmountable.

๐Ÿ‡บ๐Ÿ‡ธ Zelle announced over $300bn across 1.2bn transactions in 2020. Ron Shevlin accurately points out the average transaction of $255 indicated a very different use case compared with that of Venmo or Cash App.

Regulatory Corner ๐Ÿ”Ž

๐Ÿ‡บ๐Ÿ‡ธ Venmo is being investigated by US consumer watchdog for โ€œunauthorised fund transfers and collections processesโ€.


Longer reads ๐Ÿ“œ

  • The embedded lending we deserve - Rohit Sharma

    • ๐Ÿ™Œ๐Ÿป FATP Take - This was an excellent summary of the history of the lending space and why it previously failed as well as suggesting a path to profitability in the future. The idea of providing a Bring Your Own Model (BYOM) approach to decouple pricing and underwriting from the platformโ€™s success was super interesting. It presents a new model for a lending market place which I would love to see someone build.

  • Users' Love/Hate Fintech Relationships - Jason Mikula

  • Women in Fintech: Flourish Venturesโ€™ Emmalyn Shaw - Finledger

  • The Logical Evolution of Private Markets - Manu Kumar


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