Advanced Computing in the Age of AI | Wednesday, June 19, 2024

Fintech Is a VC Magnet 

Billions of dollars in venture capital are flying around in search of the Next Big Thing, while most investments in technology startups likely won’t pan out. Still, investors are willing to make bets on the financial technology sector as perhaps more likely to generate a return than the next Facebook or Google.

Reports surfaced this week that venture capital continues to flow into the maturing fintech sector. Investors include banks, insurers, wealth management firms and companies seeking a piece of the fintech action. The financial news site reported that 25 fintech companies raised more than $550 million in funding rounds between Oct. 12-18.

An online payment platform called Razorpay topped the list with a $100 million haul. Other large VC magnets included the Canadian online investment manager Wealthsimple ($87 million) and cyber security specialist Deepwatch ($53 million). Florida-based Deepwatch offers a cloud-based “SecOps” platform used by retailers, manufacturers and banks.

Of the 25 companies tracked by Finbold, 12 recorded double-digit funding rounds during the second week of October. Most focus on growing fintech sectors like digital banking, insurance and wealth management.

While venture capital remains the primary funding source for fintech startups, the market tracker noted a shift toward greater private equity involvement as well as debt financing. Moreover, investors tend to focus on later investments, rather than seed funding rounds. As fintech technologies are proven in the marketplace, the sector is also seeing more stock offerings and deals by established players looking to acquire fintech capabilities.

All this points to a “maturing market,” noted Finbold analyst Oliver Scott.

“With increased funding, investor activity in the fintech sector is likely to center on the infrastructure and of the financial technology ecosystem,” Scott said.

Indeed, investment bankers and other financial services firms are playing a greater role in developing fintech platforms while using their market clout to drive technology standards.

Earlier this month, for example, investment banking giant Goldman Sachs (NYSE: GS) released an open source version of its data modeling platform, Legend, in collaboration with the Fintech Open Source Foundation, an arm of the Linux Foundation.

In development since 2013, Legend would help “automate some of the most difficult data governance challenges, as well as provide self-service tools to democratize data and analytics,” said Atte Lahtiranta, Goldman Sachs’ CTO. It would also provide greater standardization and efficiency across the entire financial services ecosystem, Lahtiranta added. Goldman Sachs previously played a key role in brokering IT standards for now-ubiquitous application containers and micro-services.

About the author: George Leopold

George Leopold has written about science and technology for more than 30 years, focusing on electronics and aerospace technology. He previously served as executive editor of Electronic Engineering Times. Leopold is the author of "Calculated Risk: The Supersonic Life and Times of Gus Grissom" (Purdue University Press, 2016).