Recent years have ushered in an unprecedented wave of unicorns, startups that have defied all expectations to reach a billion-dollar valuation. In the context of the 2021 tech bubble – and the subsequent market correction – claims to the title for some companies in this camp were either premature or unwarranted. The hard truth is that achieving unicorn status signifies more than just financial success; it reflects a company’s capacity to disrupt the status quo with innovative solutions and exceptional business agility and resilience.
According to CB Insights, approximately one in five unicorns originate from the fintech sector, second only to Enterprise tech which boasts 30% of unicorns. In light of fintech’s prowess in the unicorn universe, we set out to explore some of the main drivers of success for the standout companies that are transforming how financial services are delivered and experienced worldwide, and speculate on how the future might differ from the past. The following pages reveal some of our key findings.
The unicorn journey for fintechs isn’t for the faint of heart
Broadly speaking, the path to becoming a unicorn extends well beyond developing an innovative solution or product. It requires a large market, strong leadership, and a solid business strategy. Deep domain expertise and mastery of unit economics are also essential – and of course, a little luck won’t hurt.
The term ‘unicorn’ was initially coined in 2013 by Venture Capitalist Aileen Lee, founder of CowboyVC, to signify the statistical rarity of high-performing startups. There are over 150 million startups in the world, yet very few can proudly claim to have reached their pinnacle. Indeed, only 31% of US fintech companies that raised their seed round between 2016 and 2021 were able to secure their Series A financing round.
Today, higher interests have prompted fewer venture deals and more conservative investment allocations, as well as a spike in consolidations fueled by increased M&A activity. These trends have occurred in an inflationary environment that has seen reduced global demand for products and services, so the 2023 decline in new fintech unicorns is not surprising. We may very well see this trend continue into the foreseeable future, especially given the high degree of sensitivity that fintechs have to volatility in the global economy.
Consider the industry data before saddling up on a specific sector
Our analysis of 270 fintech unicorns across 40 countries and 6 continents reveals that it takes companies an average of 5.9 years to attain a billion-dollar valuation in Fintech. We also found that the trajectory of unicorns varies across specific sectors within Fintech and that factors such as the location of a company’s founding can influence its growth. There are also qualitative considerations like the extent to which community and partnership-building play a role in determining which companies are destined to roam in unicorn pastures.
Team8’s analysis was limited to fintechs that achieved and maintained unicorn status in the past 13 years – during a tech bubble while prime interest rates were near zero. We excluded companies that underwent IPOs, acquisitions, or devaluations under $1B (which were more than a few).
Our findings show that although the path to a billion-dollar valuation may be long and tough (and getting tougher), it’s feasible under the right circumstances – and the journey might be faster if you’re in the right industry.
- Insurance: fintechs in this vertical demonstrated the fastest ‘time to unicorn’ with an average trajectory of 4.6 years. While digital insurance distributor PolicyBazaar, founded in 2008, took around 10 years to reach unicorn status, Lemonade, an Israeli-based tech-forward insurance company founded in 2015, got there in just two years. Similarly, Israeli startup Next, an online insurtech for small businesses, became a unicorn within three years of its 2016 launch.
- Banking and lending: companies in this space took an average of six years to reach ‘unicorn’ status. SoFi, a leading online personal finance company, may be an exception. They started their operations in 2011 and hit the ‘unicorn’ mark in 2015, while other startups such as Mambu, moved at a slower pace.
- Capital markets and wealth management: fintech unicorns servicing these verticals had an average trajectory of 7.6 years, although certain companies moved quicker than others. Robinhood, for example, reached a billion-dollar valuation in 2017, just three years after its launch, while eToro, a social investment platform co-founded by Team8 Managing Partner Ronen Assia in 2007, took a little longer (around 10 years). Revolut, co-founded in 2015, is another notable example, taking only four years. Their journey was likely accelerated by a business model that entailed rolling various financial services into a single mobile app, including international money transfers, currency exchange, stock, and crypto trading.
- Crypto and blockchain: the average time to unicorn in this vertical was among the fastest, just 5.2 years. Because this budding new industry holds an undeniable allure, some companies in this sector have an easier time getting higher valuations. Ripple, for example, was founded in 2012 and reportedly reached unicorn status in 2014, just two years after its launch. Another fast mover in the space, Israeli startup Fireblocks, achieved unicorn status by 2021, only three years after its founding.
- Payments: fintech unicorns in this vertical took an average of 6.7 years to win their prized valuation, longer than most of the sectors mentioned above. Stripe, an online payment processing company established in 2010, achieved unicorn status in just four years. However, other players in the space, such as Wise (originally founded in 2011 under the company name Transferwise), took roughly nine years, demonstrating the varied growth trajectories within this vertical.
Payments: A slower path to ‘unicornhood’ isn’t deterring entrepreneurs
Of the unicorns we analyzed, 27.1% hailed from the payments space. By contrast, fintechs in the insurance vertical – which had the fastest ‘time-to-unicorn’ trajectory – only constituted 9.7%.
Achieving unicorn status in the payments industry is not straightforward. It requires significant revenue streams from high transaction volumes, which take time to reach. Moreover, intense competition and shrinking profit margins further compound this challenge. Several companies in the payments industry have faced difficulties due to these obstacles, but those who succeed, thrive. A notable example is Checkout.com, a UK-based Fintech unicorn, which took 13 years to win its unicorn title and is now valued at over $11b.
Despite the competition and challenges they face, new startups are aggressively tackling the payments space as they see an opportunity gap in the market to digitally transform the industry. And the data supports this.
But what’s the winning business model?
In the realm of unicorn payment companies, a staggering 71% have embraced a B2B business model. This trend is not surprising when you consider that companies operating in the digital/globally connected era often still heavily rely on outdated and cumbersome payment processes. Given the need for digital transformation across a broad range of traditional industries, it makes sense that the most successful payment-focused startups opted for a B2B model.
In contrast to unicorn payment companies, the insurance sector heavily leans toward a B2C model, which necessitates a deep understanding of the psychological behaviors of end-users. Such expertise is uncommon among most early-stage companies. However, insurance-focused startups that have ascended to unicorn status are a notable exception. Their ability to understand consumer behavior illustrates the effectiveness and prevalence of the B2C model in this sector.
Similarly, the growth hacking abilities of fintech companies with a B2C model can significantly facilitate their ability to scale. This applies not only to the insurance industry, but also to other B2C companies in sectors like Crypto and Blockchain (where B2C models had a 55% adoption rate) or in Capital Markets and Wealth Management (where they had an adoption rate of 50%).
Israel’s fintechs: unpacking the significance of geography for unicorns
In the global fintech landscape, Israel stands out as a formidable player. It is positioned third (only behind the United States and the United Kingdom) among the leading countries that consistently produce fintech unicorns. Israel has done exceptionally well in terms of staking out a top position among global players. If we were to compare top unicorn-producing countries on a per capita basis, the ‘Startup Nation’ unsurprisingly grabs the top spot.
The achievements of Israel in cultivating unicorns stem from its entrepreneurial ethos and abundant talent pool. Founders in Israel are an eclectic bunch; they might emerge from Israel’s prestigious military units, from veteran Israeli fintech companies, or from the R&D hubs of international corporations based in Israel (the ‘PayPal Mafia’ effect also exists here, as is evidenced by unicorns like Melio and other rapidly growing startups like Mesh Payments, Empathy, Identiq and Balance, to name a few).
Here are some of Israel’s best performers in the space:
How might the landscape change & what founders should pay attention to
To excel in the fintech ecosystem, startups need more than just cutting-edge technology. They require resilient founders with clarity and conviction, individuals who can energize teams and captivate stakeholders. Below are some recent developments that could impact the time-to-unicorn fintech trajectory, and should be on the radar of every aspiring fintech builder.
B2B focus: Largely due to market volatility and in the context of customer acquisition costs reaching all-time highs, enterprise fintech companies looking to raise money have a significant advantage over consumer (B2C) fintechs. According to Pitchbook, B2B fintechs secured 70.1% of fintech venture capital in 2023, up from 40.6% in 2019.
Generative AI: as the speed and cost of innovation accelerate dramatically with AI and Gen AI, founders of new startups need to prepare for a reality where tech defensibility is not enough – they will need to create a moat in go-to-markets and via their uniqueness of data.
Lower barriers to entry for fintechs:
- Embedded finance empowers non-financial companies to easily integrate financial products into their offering, significantly broadening access and utility. It also makes it easier for financial companies to quickly expand their product offering and find new ways to monetize their customers.
- Open Banking, Open Finance, and the Data Economy as a whole are allowing players to enhance personalization, while enabling fintechs to better understand and serve their customers’ unique needs.
These last two trends around embedded finance and open banking significantly contribute to the democratization of financial services, making it much simpler for companies to integrate financial solutions – without building them from scratch – and allowing incumbents to expand their offerings. It is now much faster, cheaper, and easier to build fintech products and this is something entrepreneurs need to factor in when thinking about their next venture and their constantly evolving competitive landscapes.
Beyond taking note of these tips, all tech entrepreneurs need to rely on a robust network of talented operators, trusted advisors, design partners, and stakeholders. We know all too well that founding and building a company can be a lonely journey.
Team8 prides itself on increasing the probability of success for newly launched startups by bringing together seasoned professionals, design partners, founders, and investors in the fintech sector and applying our unique and battle-tested company-building model. Under the stewardship of industry veterans and professional networks, startups can overcome many hurdles and substantially enhance their growth and success probabilities.
If you found this interesting, want to discuss our research, have something to add, or are looking to build the next fintech unicorn, we want to hear from you!