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After a slow start to 2023, it comes as no surprise that private equity firms are taking another look at their tactics and revising their investment theses to find ideal opportunities. If your firm is searching for an industry that is showing signs of growth, financial technology (FinTech) is a promising option. In this article, we'll delve into recent FinTech M&A trends as well as the fastest-growing, bootstrapped FinTech companies based on their 3-month growth rate.
While some industries have undergone somewhat mild corrections, the lack of IPOs and overall slowdown in venture capital deals — not to mention 70% lower valuations in the last year — have opened considerable opportunities within the FinTech industry. As such, the FinTech M&A market has surged, posting a 55% quarter-over-quarter growth in total volume in Q1 of 2023, though 40% of that can be attributed to Stripe's massive $6.5B funding round.
As valuations fall and the sector is hit with mass layoffs, private equity firms would be wise to add FinTech companies to their portfolios. Some analysts are even predicting the "'class of 2023' to be a vintage year for those FinTech investors who deploy capital over the next few months." BCG is predicting the industry to reach $1.5T in annual revenue by 2030, and the neobank sub-sector is forecasted to grow at a particularly quick rate, with a compound annual growth rate (CAGR) of 53.4% between 2023 and 2030. This perfect combination of factors established FinTech as one of the more attractive options for investors in the coming years.
Environmental, social, and governance (ESG) initiatives, where companies place increased importance on doing social good both within and outside their organizations, have spread like wildfire across the business world in the past few years. And ESG initiatives have especially flourished within FinTech.
The industry tends to be generally progressive in nature, and startups that cater to ESG have been more successful than others. According to FinTech Futures, "ESG-focused fintechs have a unique ability to achieve rapid growth, deliver ESG-focused innovation, and attract investment capital to support their efforts to improve the environment and society while generating substantial returns."
To further cement the importance and prevalence of FinTech ESG, a recent survey found that the vast majority of members of the FinTech group, The Payment Association, participate in myriad ESG practices. From 9 in 10 measuring gender equality progress in their organization to 80% considering social justice impacts, it's clear that FinTech companies embracing ESG will continue to gain significance.
While the banking industry has seen relatively little innovation in the past few years, FinTech acquisitions are helping them revitalize their strategies and gain competitive advantages. A couple of examples of recent FinTech acquisitions by banks are J.P. Morgan's intended acquisition of Aumni, an investment analytics software, and rumors surrounding a Pismo acquisition by either Mastercard or Visa. Analysts in the industry are predicting an uptick in the number of banks on the hunt for bargains this year, and FinTech may just be the industry where they find what they're looking for.
Firms that are looking to take part in FinTech M&A and add an early-stage business to their portfolios often source deals with bootstrapped companies. To help, SourceScrub used its deal sourcing platform to find the top 50 fastest-growing bootstrapped FinTech companies according to their recent 3-month growth rate.
It should come as no surprise that all 50 companies offer some combination of software development, managed services, and mobile banking. Nearly all are generalists, serving the greater finance industry, with a few touting specific foci such as AI, mobile app development, or procurement.
Perhaps the most surprising trend from the top 50, though, is that all companies hail from just three countries. Nearly half (48%) are from the US. The UK represents 36% of the list, while Canada is in 3rd place at 16%.
The top 50 fastest-growing bootstrapped FinTech companies were founded over a span of just over two decades, with the oldest in 2000 and the youngest in 2021. More than half the companies were founded between 2010 and 2019, and 34% were started just in the last four years. Only four of the businesses on the list were founded from 2000-2009.
While revenue information is notoriously difficult to come by for bootstrapped companies, SourceScrub's deal sourcing platform was able to derive annual revenue for all of the top 50 companies. Over 90% have revenue values of $10 million or lower, and just four companies fall between $11 and $25 million.
Briisk, Ltd. provides automated processes, digitizes and innovates products, and explores new distribution channels, thereby reducing costs. It offers simple click-and-transact of insurance products and financial services at any online marketplace: instant insurance, instant credit, instant foreign exchange, and more.
Clear Junction, Ltd. is a global payment company that offers an end-to-end regulated payments solution based on proprietary, in-house technology. The company provides compliant payment services that are often unavailable to expanding FinTech companies. Its offering is composed of three modular components including regulatory services, advanced technology, and key banking relationships.
DTSocialize Holding, Ltd. is focused on financial services (payment solutions, e-wallets, asset management, etc.), Blockchain, and big data. It provides customers with services ranging from traditional banking to crypto asset management to investment advice.
Fuse Technologies, Inc. is a white-labeled FinTech solution that empowers event and entertainment creators to engage with their audiences in a unique way. It specializes in technology, hospitality, travel, events, hotels, nightclubs, music festivals, concerts, software, tech, white-label, direct to consumer, DTC, and venues.
Hop Financial Solutions, Ltd., is a new age digital platform. The company provides international travelers with a seamless and economical way of exchanging money.
Juice Financial is an end-to-end payments solution that makes payday easier for employees, customers, and businesses. Juice is dedicated to helping businesses stay competitive by enhancing their employee and customer experiences with customized FinTech solutions.
Kuflink, Ltd. is one of the most reliable bridging loan providers for property professionals. The company provides a P2P platform, allowing savvy investors to put money into pooled and individual properties as well as providing bridging and development loans.
MCAP LLC is a financial technology company and electronic market maker. It is one of the most active electronic market makers in securities globally.
Netevia Group, LLC helps merchants create seamless payment experiences across platforms, geographies, and services. The company makes it possible to unite customers’ payment information in a single place.
Tilli, LLC provides a global payment system that simplifies the digital payment experience for customers. The company couples this offering with a Communications-Platform-as-a-Service (CPaaS) and cutting-edge analytics.
As private equity firms are looking to pivot and find new paths to successful investments, FinTech M&A is poised to offer great opportunities. With its resilience to the economic downturn, firms are sure to find their next great deal within this innovative industry.
SourceScrub's deal sourcing platform can help you find your next investment in FinTech. With hundreds of thousands of data streams, automatic notifications for opportunities that match your theses, custom lead scoring, and more, SourceScrub is the key to sourcing your next deal.
Hit the ground running by downloading our list of the top 50 fastest-growing bootstrapped FinTech companies.