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The un(der)banked is FinTech’s largest opportunity

DeNovo-Quarterly-Q2-2016.pdf?utm_content=buffer9dd60&utm_medium=social&utm_source=twitter

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strong year for FinTech f<strong>un</strong>ding, driven by both volume and large deal<br />

flow, which will make year-over-year compar<strong>is</strong>ons difficult for the<br />

remain<strong>der</strong> of 2016.<br />

• <strong>The</strong> average transaction f<strong>un</strong>ding amo<strong>un</strong>t in the second quarter was<br />

$15.0 million, down from the recent average f<strong>un</strong>ding amo<strong>un</strong>t of<br />

$16.9 million in both 1Q16 and 2Q15. Average transaction f<strong>un</strong>ding <strong>is</strong><br />

above h<strong>is</strong>torical levels (average of $11.9 million since 2010), which<br />

indicates some maturing of the sector.<br />

• <strong>The</strong> <strong>largest</strong> transaction in the quarter was a $150 million transaction<br />

for Janalakshmi Financial Services, India’s <strong>largest</strong> microlen<strong>der</strong>.* <strong>The</strong><br />

company <strong>is</strong> a large <strong>is</strong>suer of prepaid cards and micropensions in<br />

India and will use the proceeds for additional customer acqu<strong>is</strong>ition<br />

and product expansion plans.<br />

• InsurTech has seen average sequential growth of 12% in f<strong>un</strong>ding for<br />

each of the last two quarters and has been an outlier in the midst of<br />

an aggregate FinTech industry downtick (see Exhibit 12, next page).<br />

<strong>The</strong> InsurTech space <strong>is</strong> now attracting greater interest as an area of<br />

potential d<strong>is</strong>ruption specifically addressing new methods of<br />

d<strong>is</strong>tribution among small-to-medium businesses and 1099 contract<br />

workers.<br />

• <strong>The</strong> trend of marketplace lending continues to show signs of maturity<br />

as it remains outside the top 10 most active trends — not a surpr<strong>is</strong>e<br />

given recent events that have heightened investor confidence. <strong>The</strong><br />

data shows that new companies entering the consumer lending<br />

subsector utilizing nontraditional data sources may have peaked<br />

in 1Q15, and the entrance rate of companies with at least three<br />

ro<strong>un</strong>ds of f<strong>un</strong>ding (a proxy for more “mature” areas) <strong>is</strong> decelerating,<br />

also indicative of a peak and suggesting maturity of the trend<br />

(see Exhibit 15, page 45).<br />

<strong>The</strong> decline in<br />

marketplace<br />

lending has<br />

negatively<br />

impacted<br />

overall banking<br />

f<strong>un</strong>ding.<br />

Quarterly f<strong>un</strong>ding by subsector<br />

Banking services continues to see the <strong>largest</strong> percentage of total<br />

f<strong>un</strong>ding, representing 41% ($527 million) in the second quarter.<br />

However, the subsector continues to represent a smaller percentage of<br />

total f<strong>un</strong>ding relative to the other subsectors, with second-quarter 2016<br />

activity representing the third consecutive quarter that banking has<br />

declined as a percentage of the total (41% of the total in the second<br />

quarter compared with a trailing fourth-quarter average of 57%).<br />

*<strong>The</strong> f<strong>un</strong>ding ro<strong>un</strong>d cons<strong>is</strong>ted of $150 million in primary equity financing, with an additional<br />

$60 million secondary to provide partial exits for ex<strong>is</strong>ting investors.<br />

40 Strategy&

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