Welcome to The Interchange! If you received this in your inbox, thank you for signing up and your vote of confidence. If you’re reading this as a post on our site, sign up here so you can receive it directly in the future. Every week, I’ll take a look at the hottest fintech news of the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there and it’s my job to stay on top of it — and make sense of it — so you can stay in the know. — Mary Ann
At the end of last week, venture-backed robo-adviser Wealthfront snuck in an announcement that the deal in which it was to be acquired by Swiss banking giant UBS for $1.4 billion was scrapped. Instead, as TC+ editor Alex Wilhelm reported, UBS “invested $69.7 million in the company at a valuation that Wealthfront described as $1.4 billion.”
The deal falling through — albeit as part of a “mutual agreement,” according to the two companies — came as a surprise to many and raised a number of questions.
Still, Wealthfront CEO David Fortunato tried to put an optimistic spin on the development in a September 2 blog post, writing: “I am incredibly excited about Wealthfront’s path forward as an independent company and am proud to share that thanks to the hard work of our team and the trust you put in us, we will be cash flow positive and EBITDA profitable in the next few months.”
In its own (briefer) announcement, UBS said it remained “committed to its growth plans in the US and strengthening its digital offering.”
When the acquisition agreement was first announced in January, both companies touted all the ways that combining forces would help their respective businesses grow.
David Goldstone, manager of investment research at Condor Capital, told Barron’s that he was surprised the deal was nixed, saying: “From Wealthfront’s perspective and with respect to what has happened to valuations to growth stocks, it’s not a valuation I would walk away from.”
And it’s not great for UBS either. As Axios’ Dan Primack puts it, the deal falling through “is a big setback for the Swiss lender’s efforts to broaden its client base, particularly in the U.S.”
The rather vague announcements surrounding the falling apart of the deal gave no real insight as to the motives behind dissolving the agreement.
But, according to Primack, a source familiar with the situation said, “The deal collapse came suddenly, as reflected by Friday night’s terse announcement, with unspecified regulatory concerns being raised in just the past several weeks.”
I did reach out to Wealthfront for comment and a spokesperson told me: “We unfortunately can’t discuss more than what’s been shared publicly in our blog or by UBS via their press release.”
I have heard through the (very reliable) grapevine that Wealthfront’s cash account brought in over $1 billion in the month of August alone. Also, its employee headcount has reportedly grown 15% year over year to 265. Alex digs more into the company’s AUM here.
Of course, this is not the first time that we’ve seen a deal for a large bank to acquire a fintech company fall apart over regulatory concerns. In what seems like a lifetime ago, Visa’s plans to buy Plaid for $5.3 billion were also scrapped in January 2021 after running into a regulatory wall. Many argued then that it was the best thing that could have happened to Plaid, since fintech essentially exploded after that deal was first announced and the data-focused fintech API startup ended up being valued at $13.4 billion after raising $425 million less than just three months later.
But it’s a very different environment today than it was then. And the companies operate in very different spaces. So only time will tell if this will end up being a blessing in disguise for Wealthfront or not.
In related news…the tension between banks and fintechs has long been an issue, despite increased partnerships and mergers among the two groups. But it is in fact this sort of pairing up that has bank regulators concerned (as evidenced by the above news). On September 7, Reuters reported that “the rise of fintech services and digital banking could spur financial risks and potentially a crisis over the long term,” citing Michael Hsu, Acting Comptroller of the Currency, a major U.S. bank regulator. Hsu warned that the “encroachment of fintech companies into the traditional financial sector, including via partnerships with banks, was creating more complexity and ‘de-integration’ across the banking sector.” Reuters described Hsu’s concerns that “banks and tech firms, in an effort to provide a seamless customer experience, are teaming up in ways that make it more difficult for regulators to distinguish between where the bank stops and where the tech firm starts… And with fintech valuations falling as financing costs rise, bank partnerships with fintechs are increasing.” Can’t we all just get along?
YC Demo Day(s) happened this past week, and fellow fintech reporter and Equity Podcast co-host Natasha Mascarenhas brilliantly led editorial coverage of the event. On the fintech front, she and Anita Ramaswamy did a deep dive on the related companies in the cohort, noting that “one-fifth of the accelerator’s Summer 2022 batch, which spans 240 companies, is working on solving issues in the financial space. The pitches range from building the Square for micro-merchants in Latin America to creating a way to angel invest in your favorite athlete.” You can read more on that here.
Meanwhile, Alphabet and Google announced their “expanded investment” in Black founders and funders, including the launch of Google for Startups’ third annual Black Founders Fund and the deployment of the remaining capital from Alphabet’s previously announced $100 million commitment to Black-led VC firms, startups, and organizations supporting Black entrepreneurs. Recipients included the following fintech startups: CashEx, a currency exchange platform that leverages AI to help U.S.-based African migrants transfer money to Africa with zero fees; Gainvest, an “all-inclusive” investment services platform that allows people to form entities, raise capital, and run their businesses; and Deposits.com, a Dallas-based startup offering a “cloud-based, plug-and-play feature to simplify the implementation of digital banking tools for companies like credit unions, community banks, insurers, retailers and brands.” TC’s Christine Hall covered its recent $5 million raise here.
London-based financial infrastructure startup Fidel API, whose $65 million raise I covered in the spring, announced it is officially establishing a presence in Silicon Valley with the appointment of Salman Syed as COO and the opening of an office in San Francisco. The company told me via email: “Syed — most recently the SVP and General Manager at Marqeta — will lead Fidel API’s go-to-market and operational activities to scale the business globally. He brings a wealth of experience in the payments industry, including also at Mastercard.”
Earlier this year, I wrote about Arrived, a startup that gives people a way to invest in single-family rentals “starting at just $100.” This past week, the company — which is backed by Forerunner Ventures and Bezos Expeditions, among others — announced it will now allow people to buy shares in short-term vacation rentals. Its first markets include Joshua Tree, California; Nashville, Tennessee; and Panama City, Florida. Ryan Frazier, CEO and co-founder of Arrived, said in a written statement: “Platforms like Airbnb have helped vacation rental owners generate over $150 billion in rental income from serving 1 billion guest arrivals, and yet, less than 0.5% of these guests have been able to access the wealth-building potential of this rapidly growing asset class. We’re changing that today by adding these assets to our platform.” And in case you missed it, last week, I wrote about a similar company called Landa.
eToro, a Robinhood competitor that describes itself as “the social investing network,” announced the introduction of ESG scores for over 2,700 stocks on its platform, “enabling its users to consider environmental, social, and governance factors when building their portfolios.” It’s determining scores as part of a partnership with ESG Book and will use a traffic-light system, with assets labeled as green, amber or red based on their overall ESG rating. I recently wrote about how the company is acquiring Gatsby, a fintech startup that also aimed to go head-to-head against Robinhood, for $50 million.
African payments tech startup Flutterwave has been granted a Switching and Processing License by the Central Bank of Nigeria (CBN) — which is (per the company) “widely regarded as CBN’s most valuable payments processing license,” writes TC’s Tage Kene-Okafor. The company said the license will allow it to offer transaction switching and card processing services to customers as well as to “enable transactions between banks, fintechs and other financial institutions…[to] process card transactions, participate in agency banking and offer various payment services without any intermediary.” According to Quartz: “Until now, Flutterwave had two lower-tier payments and money transfer licenses but relied on other companies to process and settle payments for its clients. Flutterwave now expects to be less dependent on other parties for the payments it processes, promising faster payments and new products that it has been ‘quietly building.’”
A couple of weeks back, I talked about some companies in the proptech space that have been struggling as of late after reportedly burning through lots of cash. That prompted another proptech to reach out to me with a different narrative. Aireal’s head of growth, Harrison Montgomery, told me via email that his company “is actually thriving in the current economic climate.” The 9-year-old company has just raised north of $2 million over the years and operates with a lean and mean mindset. Hustle Fund is its biggest investor, and it has multiple strategic angel investors that work in the real estate industry. To be clear, Aireal doesn’t operate as a fintech per se. It specializes in “proprietary” geospatial augmented reality and interactive web experiences that “allow builders to visualize and customize unbuilt structures, communities, and homes before breaking ground.” But Montgomery says some of the basic structures of its technology are similar: “We have over 70 patented metrics we measure and offer to clients…So when we are tied into ERP systems, we can provide data on how immersive technologies impact user purchasing decisions and customer spending habits, and then also on the supply-chain side, it allows real-time data analysis for product availability, prices, etc.”
Also a couple of weeks ago, I talked about fintechs focused on good. I left out a company! DonateStock, which describes itself as a B2B fintech philanthropy software outfit, has a simple goal: to make stock gifting accessible and easy for everyone. Founder Steve Latham told me via email: “Few investors are unaware that by donating stock they can avoid capital gains tax while deducting the market value of the gift.” His company, he said, allows investors “to donate stock in minutes at no cost on a nonprofit’s website” or at its own site. And, the startup can convert stock to cash for the 99% of nonprofits that lack a brokerage. Latham also told me that since exiting beta in Q3’21, DonateStock has grown to 750+ registered nonprofits (up 30x in 12 months) while processing $10 million in stock donations. He added: “We plan to 10x the business over the next 12 months by making our Easy Button for stock gifting available to online giving platforms that process ACH, credit card and PayPal gifts but cannot do stock gifting (which is all of them).” The company is mostly bootstrapped, having raised about $2 million from family offices, angels, Capital Factory and its own management team. “We can do very well by doing good,” Latham said.
Fundings and M&A
Another week down in the books. I hope all is well in your world. I already have several super interesting stories planned for next week, so stay tuned. Until then, take good care!! xoxoxo, Mary Ann
In case you have been hiding under a rock and haven’t heard, TechCrunch Disrupt is coming to San Francisco October 18–20! I would absolutely love to see you there. Use the code INTERCHANGE to get 15% off passes (excluding online and expo), or simply click here.
Cap Expand Partners sharing news from: techcrunch.com