If there was any doubt as to whether there is an initial public offering (IPO) boom, just take a look at the numbers: There have been 488 IPOs in 2021 so far, compared to just 62 this time last year.
It’s a nearly 700 percent growth rate that the FinTech community has certainly helped to propel, thanks to what Deep Lake Capital Co-founder, Chairman and CEO Mark Lavelle said is a mix of “public company demand, private company pricing and an outsize amount of capital available to invest in companies.”
Especially FinTech companies, he told Karen Webster for the latest iteration of The Week in Payments. A glance at the week’s top headlines finds more than a continuation of the IPO/SPAC boom. Crypto faced another week of ups and downs, with Dubai launching its own cryptocurrency and China continuing its bitcoin crackdown.
Plus, the takeover of MGM may present some lessons to be learned about what makes a successful ecosystem.
The IPO bonanza shows no signs of slowing for the FinTech space, as both Paymentus and Flywire went public this week. But they weren’t the only headline-grabbers in float news: India’s Paytm, Brazil’s Ebanx and Los Angeles-based Aspiration all revealed their own plans for upcoming IPOs.
According to Lavelle, an entrepreneurial spirit fueling the acceleration of new FinTech startup launches, an impressive total addressable market in the trillions (not billions) of dollars, investors being “awash” with cash and public investors looking to get in at earlier stages of FinTechs’ growth trajectories all combine to create an immensely favorable ecosystem for FinTechs to go public.
That’s true of both the IPO and SPAC route, with the latter gaining wider acceptance – most recently with the decision by Tel Aviv’s stock exchange to support trading of these firms. There are some signs of a possible slowdown in interest among startup founders, but for investors, the SPAC remains an attractive target.
“The SPAC is able to set evaluation for a growth company that all investors agree in and can perform above-market returns for a long period of time,” said Lavelle. “People have a long-term perspective.”
Crypto’s Regulatory Test
It’s not just the price of bitcoin that is struggling with volatility. The cryptocurrency industry as a whole seems to be pulled in several directions among investors and regulators that either reinforce or compromise investors’ faith in the technology. China’s regulatory pressure on the space continued this week, with a crackdown on bitcoin mining failing to produce the valuation spike some had anticipated.
Meanwhile, the crypto industry remains confident, with Mexico digital wallet Airtm securing an impressive investment from Stellar, and Coinbase introducing new services for institutional and business investors.
“I’m pretty bullish on bitcoin as something that will sit on people’s balance sheets and net-worth statements in some form or fashion,” noted Lavelle.
While industry spectators might be skeptical as valuations fluctuate between $40,000 and $65,000, it’s important to remember where bitcoin was just a few years ago: $4,000.
It may be following an unfortunate, yet reliable, path to legitimacy: What once began, like other digital commerce and FinTech tools, as a way to fuel illicit activity now has an opportunity to step into the main (legal) stage of the global economy – particularly as more governments introduce their own state-backed digital currencies.
What could be the biggest test for bitcoin, said Lavelle, is proving that it can remain relevant in an environment of stricter regulatory measures. That’s when bitcoin will be able to push into higher valuations.
Perhaps the most attention-grabbing headline this week came from Amazon, which is said to be closing in on a deal to acquire MGM for a whopping $8.45 billion.
It would be yet another component of Amazon’s ever-expanding network of products and services, from Amazon Prime to Amazon Pay to PillPack and, of course, video streaming. But is the Amazon behemoth an ecosystem? Not by Lavelle’s standards.
“Amazon is leveraging 175 million Prime customers to give them things and keep them occupied, because they are at the top of the triangle of spending, and they own that,” he said. “That is a brilliant strategy. I think it is different than what I would think of as ecosystems – the ecosystems I’m interested in provide enough economic benefit for partners and stakeholders, and also create a defensible advantage.”
Valuable ecosystems are platforms that can cooperate with other systems, he added, as customers – especially business users – aren’t interested in being locked into a “walled garden.”
Just take a look at Google, which announced this week an integration between the Google Merchant Center and Square following another partnership with Shopify. That industry collaboration can support traction for multiple stakeholders, said Lavelle.
Names like Google, Amazon and bitcoin will always grab headlines. But for Lavelle and a SPAC like Deep Lake Capital, it takes a glance beyond the public hype to find the next success story. “We’re finding great companies that talk to a lot of opportunity there, underneath all of the headlines in the froth,” Lavelle said.