Being an entrepreneur and an active player in the startup community means staying on top of what’s hot at the moment. That’s not always easy, especially since new trends are emerging in a matter of days.
One way to do that is to follow specific people on Twitter, keep up with business podcasts, and to go through interviews with people on the verge of tech. At least, that’s what I’m doing. So, in the past couple of weeks, I’ve realized people talk extensively about 3 topics. All of them are incredibly interesting and have a huge potential to create whole new product segments (some of them already did).
Below are some fintech trends I think will become huge in the coming months.
It’s becoming increasingly easy for people who are not professional investors to invest their money. Fintechs like Robinhood and Revolut have allowed everyday users to have access to the stock market from the palm of their hands.
Rolling funds are yet another tool that lowers the entry barrier for people who want to invest in companies. They’re structured on a quarterly basis, which means investors can subscribe for a number of quarters (e.g. with a minimum of 10K USD per quarter), but each quarter the fund is open for new players to join – that’s also where the name comes from.
Every rolling fund has a manager which decides what to invest in and shares the returns with the fund participants. In exchange, this person gets a carried interest over a 2-4 year period.
Who are those rolling fund managers? They’re usually people, who’ve already been active in the VC world for a few years and have the means and network required to make an informed decision on which investments would have the highest return.
At the moment Angel List is the only platform, where you can set up a rolling fund and they do individual approval and onboarding for everyone, who wants to start one.
It’s a neat idea, considering how everyone in the loop can benefit from this type of structure. For the GP it’s an easier and much more affordable way to set up a fund. It’s also a way for them to expand their network and gain access to even more connections and investment opportunities.
For the LP, rolling funds present an easier way to invest in startups, without necessarily having access to the startup world. Ideally, it’s also an excellent way to earn money.
For startups, this is yet another opportunity to raise capital. It’s also beneficial for founders who want to meet more potential investors and mentors since a lot of the rolling fund investors will also be experienced entrepreneurs interested in the ecosystem.
Right now, Angel List has a sort of monopoly on rolling funds and it’s interesting to see what they choose to do with this advantage. However, pretty soon there are sure to be other fund administration platforms, who will create a similar if not the same offering.
SPAC-based products and services
SPACs are special purpose acquisition companies. It’s a company category that is created and listed on the stock market with the sole purpose of merging with a private company to make it public.
SPACs have existed since the 90s, but recently they’ve grown into popularity because of a few interesting, high-profile cases that received wide media attention (e.g. the Nikola merger).
SPACs have also returned in popularity because of a few powerful advantages. For the company looking to go public, the biggest benefit is the easy way to the market. In the traditional IPO scenario, the company will need more than a few months to prepare to get listed. They’ll also need to meet with a ton of investors to negotiate their future price and hopefully raise their offering before they even go public.
SPAC deals are negotiated and launched on the market in a matter of weeks. Also, instead of having to talk to investors about terms, the company needs to negotiate only with the SPAC, which is usually just one person. That means higher price certainty, a quicker road to market, and on top of that, the number of documents you need to submit is substantially smaller (no need for the infamous S1).
There’s a trend emerging here, which is similar to the rolling funds. Through a SPAC, investors are able to bet on a company based on the SPAC manager. If you know the manager is a capable entrepreneur with a history of successful IPOs and mergers, you’ll want to get in on that.
So how can one benefit from this growing SPAC popularity?
There are already a number of fintech subscription services (www.spacwatch.com, www.spacresearch.com), informing people of upcoming mergers and SPACs. Things are moving fast and it’s important to get information quickly on upcoming deals. Basically, it’s a good time to launch fintech products and tools to help investors find and invest in SPACs.
Buying a company has been an option, since the invention of companies, so that’s nothing new. But recently, there’s been an increasing interest in both spending some time to get an online business going and selling it, and buying an online business that’s starting to gain some traction.
After the initial hype of starting a venture that we saw a few years ago (not that it’s not compelling anymore, but it just feels a bit more mature now), people have realized how risky it is to create a startup. It basically has “risk” engraved in the definition.
To mitigate this risk, entrepreneurs are increasingly purchasing early-stage ventures, which are just starting to see some initial traction (e.g. a few hundred active users, or maybe a few thousand MRR).
Again, this might not sound like anything new – startups are getting acquired all the time. But the key here is the size of the companies getting acquired. Most are often side projects, created by indie hackers or solopreneurs, who are active in a given space and have spent a few months to bring a digital tool or a service to market.
An example of this trend is the numerous emerging platforms for listing and selling your small business (e.g. flippa.com, microacquire.com, and many more).
Entrepreneurs with some cash on the side can now browse those fintech platforms and purchase businesses that have already proven to have a product-market-fit, instead of going through the painful and oftentimes uncertain process of finding it themselves.
Similar to the rolling funds, this is another way that allows regular people with some amount of capital to enter the fintech world.
Even though the observations mentioned here are seemingly different in a lot of ways, there are also some common topics we can see emerging. The first one is that the general direction we’re moving in is a more democratized and inclusive fintech market, in which everyone can participate, not just a select few, who can benefit from limited information.
The second one is the focus on an individual, a well-known person with experience to bet on. This creates an incentive for entrepreneurs not just to accumulate wealth, but also to become “business influencers” who others can follow in whatever decisions they make. The way to become such a notable figure is usually to create value for others and this makes it an exciting process to witness.