New supercompanies combine the best of software and financials – ClearTips

if there is money How can fintechs – those who sell money, carry money or sell insurance against monetary loss – create products that last apart and create lasting value over time?

And why are so many software companies – which already boast highly differentiated offerings and serve vast markets – moving to provide financial services within their products?

A new and lucrative hybrid category from the company is emerging at the intersection of software and financial services, generating buzz in the investment and entrepreneurial communities, as we reported this week in our “Fintech: The Endgame” virtual conference and accompanying report. was discussed.

These specialized companies—in some cases, software companies that also process payments and hold funds on behalf of their customers, and, in others, financial-first companies that integrate workflows and reminiscent of software companies—both Combines some of the best features of Categories.

image credit: Battery Ventures

From software, they design to strong user engagement linked to useful, intuitive products that promote long-term retention. From financials, they draw on the ability of the client to earn revenue indexed to the growth of the business.

Fintech is set to revolutionize financial services, both by rediscovering existing products and driving new business models, as financial services become more widespread in other sectors.

According to Battery Analysis, the powerful combination of these two models is rapidly driving both public and private market value as investors assign premium valuations to these “super” companies – in the public sector, nearly twice the average multiplier of pure software companies. .

The most perfect example of this phenomenon is Shopify, the company that created its name-selling software to help business owners launch and manage online stores. Despite achieving remarkable scale with this basic SaaS product, Shopify makes twice as much revenue from payments today, as it enables those business owners to accept credit card payments and act as their own payment processor.

According to CapIQ data as of May 26, the combination of a software solution indexed for e-commerce growth, combined with a profitable payment stream growing even faster than its software revenue, investors gave Shopify a take on its forward revenue. 31x multiplier is provided.

How should we value these fintech companies anyway?

Before talking about how investors should value these hybrid companies, it’s worth mentioning that fintechs have been notoriously difficult to value, both in the private and public markets, sparking controversy and debate in the investment community. are promoting.

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