The term ‘Unicorn’ was first introduced in 2013, as a way to signify the statistical rarity of high-performing startups. Unicorn status today is much more than a financial milestone of around $1 billion; for startups, it’s a recognition of their organization’s disruptive capabilities, unique solutions, business agility, and potential to reshape financial services in the case of Fintech.
In its latest findings, Team8 – an Israel-based company builder and venture group – identified what it takes for a Fintech startup to become a unicorn in today’s economic landscape and the work each vertical commits to this achievement.
A few insights found:
- The average timespan it takes for a startup to attain a billion-dollar valuation is expected to be around 5.9 years.
- The most popular verticals for Fintech unicorns, includes payments, banking & lending, crypto & blockchain, insurance, and more
- Understanding the winning business model for Fintechs, from B2B to B2B2C
We recently connected with Galia Beer-Gabel, Partner at Team8, to discuss these findings.
Our conversation with Galia is shared below.
Crowdfund Insider: What defines a unicorn in today’s business landscape?
Galia Beer-Gabel: Since the concept of unicorns emerged in 2013, achieving that level has become a standard of success. Reaching Unicorn status in the current market landscape carries significantly more weight than in previous years. Today, founders looking to attain unicorn status understand it goes beyond valuation. It embodies a blend of innovation, market dominance, and strategic prowess, in addition to significant revenues.
Beyond merely offering a groundbreaking product, a billion-dollar valuation in today’s landscape demands a profound understanding of the market, exceptional leadership, and a resilient business strategy.
This transcendence from status to disruptive potential is particularly evident in sectors like Fintech, where the reshaping of financial services is well underway.
The era of unicorns is evolving with a new standard of success emerging startups: the centaur. Businesses earn this designation by reaching $100 million in annual recurring revenue (ARR), marking a shift from valuing balance sheets to prioritizing income statements.
Crowdfund Insider: What is the typical timeframe for a Fintech startup to achieve unicorn status?
Galia Beer-Gabel: Data from a recent analysis conducted by Team8, encompassing 270 Fintech unicorns across 40 countries and 6 continents, shows that it can take a Fintech startup, on average, around 5.9 years to attain a billion-dollar valuation.
Breaking down this timeline by vertical reveals intriguing patterns that are shaped by sector-specific dynamics and market conditions. Leading the charge, Fintech start-ups in the insurance sector achieve unicorn status at a faster pace, boasting an average trajectory of 4.6 years. Companies in the crypto and blockchain sector accomplish this feat in an average of 5.2 years, as the industry’s allure and significantly untapped market potential often facilitate higher valuations. The banking and lending sector averages around six years to reach unicorn status.
Fintech startups in the payments sector tend to face a longer journey, requiring an average timeframe of 6.7 years to achieve unicorn status. Similarly, Fintechs specializing in capital markets and wealth management require an average of 7.6 years to attain unicorn status. Of course, certain companies within these verticals may progress more rapidly than others.
Crowdfund Insider: What are the most popular verticals for Fintech unicorns?
Galia Beer-Gabel: Over the past 13 years, the most popular verticals for Fintech unicorns have included payments, banking and lending, crypto and blockchain, and insurance.
Among these verticals, Team8’s findings revealed the payments sector emerging as a focal point, with 27.1% of the Fintech unicorns analyzed hailing from the payments sector. Startups are aggressively entering the payments space, driven by an opportunity gap in the market to transform the industry digitally.
Payments are a volume-based vertical, so reaching high revenues usually tends to require time. Intense competition and shrinking profit margins also present formidable hurdles.
Speed isn’t everything, and those startups who commit tend to see the eventual payoff. A standout example is Checkout.com, a UK-based Fintech unicorn, which, despite a 13-year journey to attain unicorn status, now boasts a valuation exceeding $11 billion.
Crowdfund Insider: What are the winning business models for Fintechs, from B2B to B2B2C?
Galia Beer-Gabel: Within the realm of unicorn payment companies, a remarkable 71% have embraced a B2B business model. This dominance is not surprising considering companies’ persistent reliance on outdated payment processes, the imperative for digital transformation across traditional industries fuels the success of payments-focused startups.
The insurance sector predominantly favors a B2C model, reflecting a need for deep understanding of end-user behaviors. While such expertise is often rare among early-stage companies, unicorn-status insurance startups stand out as exceptions. Their adeptness in grasping consumer behavior underscores the efficacy and prevalence of the B2C model in this sector.
Similarly, Fintech unicorns leveraging a B2C model have demonstrated remarkable growth hacking abilities, facilitating their scalability. This trend extends beyond the insurance industry, evident in sectors like Crypto and Blockchain, where B2C models boasted a 55% adoption rate among unicorns. Additionally, in Capital Markets and Wealth Management, B2C models were prevalent, with a 50% adoption rate, showcasing their effectiveness in driving growth and market penetration.
Crowdfund Insider: What is the significance of geography for unicorns?
Galia Beer-Gabel: Geography plays a pivotal role in Fintech, with certain regions emerging as hotbeds of innovation and unicorn creation. Notably, Israel (where I’m based) shines as a formidable player in this landscape, ranking third—only behind the United States and the United Kingdom—in consistently producing Fintech unicorns.
Israel’s remarkable success in nurturing unicorns stems from its vibrant entrepreneurial ecosystem and abundant talent pool. The country, often referred to as the ‘Startup Nation,’ claims the top spot when comparing unicorns on a per capita basis.
Crowdfund Insider: What role does macroeconomics play in shaping the Fintech sector, and how can startups leverage this?
Galia Beer-Gabel: Macroeconomic factors significantly impact the Fintech landscape, presenting challenges and opportunities for startups. For example, interest rate fluctuations directly affect capital costs in sectors like mortgage and lending, but startups can plan for a healthier future by adapting quickly to market shifts.
The rapid pace of Fintech innovation makes predicting the future challenging, yet startups can thrive by embracing uncertainty, staying agile, and identifying underserved markets. By aligning their offerings with evolving consumer needs and market dynamics, startups can leverage macroeconomic trends to their advantage and drive innovation and growth.
Crowdfund Insider: How are new tech innovations like Gen AI changing the startup landscape, and what should founders pay attention to?
Galia Beer-Gabel: Gen AI is already being used to automate simple tasks and for co-pilot use cases that increase productivity and drive efficiency gains. For the most part, it’s not replacing humans altogether; it simply empowers them to be more effective. The adoption of more advanced AI models is coming, but it will take time to train and build trust in them, especially for financial services.
Incumbents who already possess large troves of data are uniquely positioned to leverage AI to create value and make an impact. However, they don’t always have the in-house capabilities to harness the potential of their assets. Smart founders will fill this gap by building the solutions and propositions that large incumbents need.
And finally, Fintech innovation is being democratized In light of the embedded and open-banking trends that lower barriers of entry for new startups, and make it easier for existing players to add Fintech to their product portfolio. Founders need to gain a competitive advantage by rethinking their defensibility strategy. Having the latest and greatest AI models isn’t enough. To truly thrive, they need access to large and unique data sets (or the capacity to create them) and to secure the right distribution channels and data-driven partnerships.
Crowdfund Insider: What is the outlook for Fintechs?
Galia Beer-Gabel: Despite some dire predictions, the current climate presents a promising opportunity for Fintech startups to thrive.
From our vantage point at Team8, the future landscape holds immense potential for innovation and growth. Despite obstacles such as higher interest rates and reduced venture deals, the need for continuous Fintech-related innovation remains high.
In a climate of conservative investment allocations and heightened M&A activity, Fintech startups must remain nimble and adaptable, at least until proper product-market fit has been proven.
Looking ahead, we believe that the Fintech sector remains resilient and poised for continued growth. By embracing innovation, prioritizing financial responsibility, and staying attuned to market dynamics, Fintech startups can navigate the evolving landscape and emerge stronger in the face of uncertainty.
Some of the biggest and most interesting companies around us today were born post-financial crisis, companies like Uber, Airbnb, Square, Stripe, CreditKarma, NerdWallet, Airbnb, and WhatsApp.
