“…What ya’ think all the guns is for?
All-purpose war, got the Rottweilers by the door
And I feed ’em powder so they can devour
The criminals tryin’ to drop my decimals…”
Warning, Notorious B.I.G, September 1993
Earlier this week I spoke with a young VC who was touting his performance and the couple of recent unicorns he had invested in “back in the day” in 2018.
Following that meeting, I intended to write a quick piece about how crazy it is that we now have 780 tech unicorns with a cumulative value of $2.5TN. So much that almost all VCs, even this young fellow are starting to look like heroes. (On paper that is..)
I then forgot about it and when I came to revisit the draft I noticed that the number has grown over the past four days to 790 tech unicorns.
Crazy isn’t it?
I think it would be prudent to assume that the valuation of 30–40% of the companies in the unicorn list is unwarranted, driven mostly by investors making bold bets at 100X early ARR numbers in companies that have yet to prove their unit economics, strength of c-suite, product-market fit, etc.
Every investor with capital can crown a company a unicorn. With over 3,000 VC funds globally and thousands of other Family Offices andInstitutional Investors dumping yield-deprived-capital into the technology sector with varied degrees of discretion, talent, wisdom and experience —
Anyone with a pulse nowadays can essentially crown a unicorn.
And It shows..
Notwithstanding the above there is one fundamental and undeniable truth we should all bear in mind at these (frothy) times.
I will use an analogy here — Just because a few lakes, ponds and swamps in the ecosystem are contaminated, it doesn’t mean that the ocean is not blue.
Let’s take FinTech as an example as it is Group 11’s and my subject matter expertise: About 20% of the global Unicorn list is comprised of FinTech and FinTech adjacent companies. This sums to about $500BN / $0.5TN in cumulative market cap.
Now look at established publicly traded financial services players globally and sum their market cap and you will get $15TN. Interestingly, over 60% those companies are over 50 years old.
Wells Fargo is trading today at a market cap of about $208BN, Bank of America at a market cap of $353BN and just between these two established players you have the TOTAL cumulative market cap of ALL FinTech insurgents.
Think about it?
Founded in 1852, Wells Fargo is an example of everything outdated in financial services. The bank toutes 80K branches, 270K employees, rigid 9–5 working hours, a credit process taken from the days of Ancient Rome, and an awful customer service that “delights” its clients with a -2 NPS. Bank of America competes with being worse with a -24!! NPS.
The two are worth together as much as all of global FinTech.
I can keep going and talk about AIG, Citi, Morgan Stanley, Syncrony, and hundreds more but you get the idea.
We are in the midst of an all-out war that we have already won using unconventional means like AI/ML and all of these incumbents are ‘dead man walking’. They might even know it.
Over the next decade the giants we know today will be devoured by FinTech. By the same FinTechs that are already part of the global unicorn list and that will soon join that list.
Financial engineering, in the form of unicorns or SPACs, is here to stay for the foreseeable future. But let us not forget that at the end of the day, the guards are changing and that the brightest minds in the world are working to improve almost all financial products and processes.
A prolonged discussion about ‘insane’ unicorn valuations won’t change the ultimate outcome -The gap from $0.5TN to $15TN is not 96% in market cap the FinTech industry still needs to obtain; It is merely 10 years.
Group 11 plans on being there, not as financial engineers but as architects of an inevitble change.