Fintech
Post Investment: Can Fintech Rebuild on Value, Not Hype? You might be surprised!
The pendulum seems to be swinging from the era of easy capital and rapid growth to a more sobering reality of value creation.
In this transformative period, Scott Dawson, a seasoned veteran with over two decades of experience in the payments industry and currently the head of sales and strategic partnerships at payment platform DECTA, delves into this transition, offering an understanding of the strategic opportunities emerging amid industry challenges.
In the middling science fiction novel Those Who Remain, author G. Michael Hopf said: “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.” This quote (which in modern terms obviously relates to all human beings) has become something of a catch-all sentiment for ‘decadence’.
The Great Depression in the 1930s is a good example of a time that this quote capture well: When economic turmoil challenged communities and individuals, making it necessary to adapt innovate, and endure severe economic hardships. As a result, a hardier society emerged, giving rise to a generation that understood the value of hard work, frugality, and community support. The Metaphor works equally well if we switch ‘men’ to ‘companies’.
In fact, it sheds some much-needed light on the trajectory of business in the 21st century. In good times investors, flush with cash, invest in thousands of weak businesses, these businesses fail and investors are forced to find more reliable sources of profit and then, again flush with cash, they return to spraying billions of dollars at any Standford drop-out with a pitch deck and a hoodie.
With fintech investment now a quarter of what it was a year ago, it seems that the good times are over and the hard times are here in earnest. Key to this has been interest rates: the very same mechanism that means that fuel and food is now more expensive than ever before also means that it is more expensive to borrow large sums of money.
Following the Great Recession of 2008, many first-world nations adopted Zero Interest Rate Policy (ZIRP) as a means of boosting investment. If companies can borrow at zero or close to zero percent interest then they should, economists say, found profitable businesses, create jobs and stimulate the economy.
Theoretically, this approach is solid except for the fact that it doesn’t always work. Japan did just this, going so far as having negative interest rates, in the 1990s ‘lost decade’ and it didn’t work. But a byproduct was massive investment funds like Softbank Vision Fund, which in turn supported many of the big names of the ZIRP-era: Doordash, Uber, WeWork, Revolut, Slack, FTX and Klarna, among others. That being said, FTX has since collapsed due to fraud, while WeWork went bankrupt and Uber posted its first profitable quarter this year – despite being founded in 2017.
However, to the strategically minded, every crisis is an opportunity. Fintech now has the chance to get real about creating companies that really create value, that are of service to the community and solve real problems instead of jumping from one VC cash infusion to the next.
The fintech cycle beings again
Fintech investment in 2023 was a quarter of what it was in 2022, and a fifth of its peak in 2021. In the UK, one of the world’s great Fintech hubs, investment is down 57 per cent. This isn’t the same across the board: the percentage of VC funding going to fintech startups is down five per cent on 2022 and seven per cent since its high of 20 per cent in 2021. The creation of new unicorns is also down significantly: 59 companies had exits of over a billion dollars in Q2 of 2021 – in Q2 of 2023 the figure was only two. In short, VCs seemingly just aren’t that into fintech anymore.
This is in stark contrast with previous decade: PayPal, Revolut, Venmo, Stripe and Klarna became multi-billion dollar businesses almost overnight and remain so by giving people access to services that traditional financial services companies couldn’t offer – instant payments or buy-now-pay-later financing. To find these diamonds in the rough the venture capital world had to burn through hundreds of no-so-shiny diamonds, often at great cost – those 59 startups with exits in Q1 2021 aren’t likely to be household names today, if they even still exist.
Anyone who has been at a fintech conference in the last decade might have been given a business card and tote bag by a company with a clever name, stylish design, scads of VC money but with no obvious reason to exist. Such companies might not provide a new or better solution to an existing problem or have a real addressable market, and quite often no plan to become a profitable business.
This preference for growth over profit is key and is one of the defining aspects of the ZIRP era. Of course, there are example where it was been responsible for massively successful companies: Amazon dramatically cut prices of books to the point that physical bookstores were going out of business, eventually expanding its customer base so much that it cannot fail to turn a profit – it is selling so much that even the pennies it makes on a sale add up to hundreds of billions of dollars in gross profit each year.
However, its rate of growth is falling, despite a marked upturn during the pandemic, falling from an average of around 40 per cent YoY quarterly growth in the early 2010s to 30 per cent later in that decade and now a flat 20 per cent. It has now transitioned from a period of rapid growth to a profit-driven model, something that many other growth-oriented companies have failed to do.
Getting real about profit
As the faucet of cheap money shuts off, the VCs face a reckoning. The shotgun approach of spraying cash at hundreds of companies in the hope of striking gold won’t cut it anymore. The new imperative? Finding the needle in the haystack – those rare gems with genuine profit potential and genuine solutions to real problems.
It is important to say that fintech investment is still happening, albeit at a deteriorated rate. But some startups are choosing alternative paths, wary of the VC roller coaster. This could mark a welcome shift: a refocus on problem solving first, growth second. The road ahead might be bumpy, but it could be the very dose of reality the industry needs. It’s time to build for value, not just valuation.
Source: thefintechtimes.com
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Mews , a cloud SaaS and fintech platform that serves the hospitality industry, has announced today the appointment of Steve Cakebread to the company’s board.
Cakebread is famed for leading the financial teams that took Salesforce, Pandora and Yext to IPO and is the author of “The IPO Playbook: An Insider’s Perspective on Taking Your Company Public and How to Do It Right.”
Cakebread serves on the board of Bill.com, which went public in December 2019, and sat on the boards of SolarWinds and eHealth. Earlier in his career, he served as CFO for Autodesk, VP of Finance for Silicon Graphics (now SGI), and Director of Finance at Hewlett-Packard.
Matt Welle, CEO of Mews, commented, “Steve’s capital markets experience is renowned, having led Salesforce, Pandora and Yext through IPOs and beyond. He has a deep understanding of building teams, governance and accountability, which will be instrumental in our growth journey. We are delighted that Steve joins the board at such a crucial time in our growth.”
Mews founder, Richard Valtr, added, “Steve is a seasoned leader with phenomenal experience leading financial teams to success. His invaluable knowledge and strategic oversight are exactly what we need to navigate Mews’ next chapter, support our aggressive growth plans, and cement our position as the market leader in cloud hospitality.”
Cakebread’s appointment comes as Mews experiences exponential growth. In the last 12 months, Mews has reached unicorn status with a valuation crossing $1.2 billion, seen a 250% increase in customers in North America, and achieved over 25 million check-ins at hotels worldwide. Mews recently announced $100m in new financing from Vista Credit Partners to further fuel its organic growth and M&A program through its investment arm, Mews Ventures.
“Mews has a colossal opportunity in the hospitality software and payments markets, sized at over $20 billion, driven by widespread adoption of cloud-based technology. Mews has achieved market penetration in core geographies, serving more than 5,500 hospitality brands worldwide, and is well poised to become the market leader. A key enabler of the company’s success is its marketplace which sees over 1,000 integrations on its platform, offering hoteliers the best solutions to build tailored tech stacks for their needs.”
He added, “Mews has the people and the passion to deliver on its mission and transform hospitality and beyond. The team is driving impressive product development and flawless execution, powering its growth trajectory. I am excited to be a part of Mews’ continued success and to work with the leadership team to accelerate the company’s next phase.”
Mews is trusted by the world’s most innovative hospitality brands, including BWH Hotels, Strawberry and Lark Hotels.
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Vakrangee proudly announces the sourcing and distribution of its own Private Label Apparel products under the e-commerce business category.
The Company has successfully launched the pilot phase in the apparel segment and would leverage the extensive network of Vakrangee Kendra outlets, including both Franchisee and Master Franchisee channels.
Upon the successful completion of this pilot, Vakrangee will scale the initiative to a pan-India level. Additionally, the Company has future plans to diversify into other consumer and retail product categories, thereby expanding our footprint in the broader market.
The newly launched collection encompasses a wide range of apparel designed for men, focusing on trendy, comfortable, and affordable clothing for all occasions. With this launch, the Company aims to cater to a diverse audience, offering high-quality fabrics, modern designs, and unmatched value.
Commenting on this partnership, Ms. Divya Nandwana, Chairperson of Vakrangee Ltd., said, “We are thrilled to introduce our private label offerings, which not only diversify our product portfolio but also reinforce our position as a key enabler in India’s rural distribution ecosystem. By utilizing our robust Vakrangee Kendra platform, we can ensure the seamless availability of high-quality products to underserved markets, all while maintaining competitive and affordable pricing. This initiative aligns with Vakrangee’s broader vision of providing comprehensive consumer and retail solutions, backed by an unparalleled distribution network and a deep commitment to customer-centric excellence.”
Vakrangee Kendras are exclusive format outlets offering a comprehensive range of products and services across banking, insurance, ATM, assisted e-Commerce, e-Governance and Total Healthcare. The company will continue to add more products and services to offer the customers, a one-stop solution to all their needs. The company is aspiring to be the most trustworthy physical as well as online convenience store across India and positively moving towards Vakrangee Kendra’s new brand philosophy of ‘AB Poori Duniya Pados Mein’.
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U Power Limited (Nasdaq: UCAR) (the “Company” or “U Power”), a vehicle sourcing services provider with a vision to becoming a comprehensive EV battery power solution provider in China, today announced its financial results for the six months ended June 30, 2024.
Mr. Jia Li, Chief Executive Officer and Chairman of the Board of Directors of the Company, commented, “In the first half of fiscal year 2024, our business achieved 595.7% year-over-year revenue growth to reach RMB13.2 million. This growth stemmed from increased orders from both existing clients and new customers for our battery-swapping stations as the economy continued to gradually recover following the COVID-19 pandemic. We’ve been successful in transforming our vehicle sourcing business to provide EV battery power solutions in China. We believe that this shift has enhanced our competitiveness, and we expect it to expand our future revenue growth potential.”
Ms. Bingyi Zhao, Chief Financial Officer of the Company, added, “Our financial results for the first half of fiscal year 2024 demonstrate our commitment to responsible financial management while simultaneously making strategic investments for our future growth. Our R&D expenses decreased as we have successfully completed several key projects, and we remain committed to innovation and have strategically allocated resources to new and high-potential research initiatives. Our improved credit management practices have yielded positive results, as we generated an expected gain on credit of RMB0.5 million in the first half, compared to a loss in the same period last year. We believe we are well-positioned with the necessary working capital and strong foundation to support our growth plans, including the launch of operations in multiple international markets, and we are confident in the current financial state of the business.”
First Half of 2024 Financial Results
Revenues
Total revenues increased by 595.7% year over year to RMB13.2 million (US$1.8 million) in the first half of 2024.
- Product sales revenues were RMB12.4 million (US$1.7 million) in the first half of 2024, compared to nil in the same period of 2023, representing 93.9% of total net revenues. This was a result of the Company’s ability to sell more battery stations as the economy gradually recovered from the impact of COVID-19 in 2023.
- Sourcing services revenues were RMB0.1 million (US$10,000) in the first half of 2024, compared to RMB1.4 million in the same period of 2023, representing 0.6% of total net revenues. The decrease was a result of the company’s shift in focus towards charging- and swapping-related products.
- Battery-swapping services revenues were RMB0.7 million (US$0.1 million) in the first half of 2024, compared to RMB0.5 million in the same period of 2023, representing 5.5% of total net revenues. The increase was primarily driven by the Company’s operation of a second battery-swapping station beginning in March 2023, which remained operational through the reporting period.
Cost of revenues, gross profit and margin
Total cost of revenues increased 1,893.6% year over year to RMB11.9 million (US$1.6 million) for the first half of 2024, primarily driven by significant revenue growth and strategic shifts in the supply chain. This increase was primarily due to the increased cost of product sales of battery swapping stations.
Total gross profit decreased 0.8% year over year to RMB1.3 million (US$0.2 million) for the first half of 2024, representing a gross margin of 9.8%.
Operating expenses
Total operating expenses were RMB27.7 million (US$3.8 million) for the first half of 2024, representing an increase of 26.8% from the same period last year.
- Sales and marketing expenses were RMB1.5 million (US$0.2 million) in the first half of 2024, compared to RMB1.0 million in the same period of last year, representing an increase of 46.5%. This increase is primarily due to the increase in marketing expenses for selling battery swapping stations.
- General and administrative expenses were RMB26.2 million (US$3.6 million) in the first half of 2024, compared to RMB16.8 million in the same period of last year, representing an increase of 55.8%, primarily driven by an increase in audit costs and other professional service costs.
- Research and development expenses were RMB0.6 million (US$0.1 million) in the first half of 2024, compared to RMB1.9 million in the same period of last year, representing a decrease of 70.4%, primarily due to the decreased UOTTA technology innovation activities related to research and development programs.
- Expected gain/loss on credit resulted in a gain of RMB0.5 million (US$70,000) in the first half of 2024, compared to a loss of RMB2.1 million in the same period of last year. The decrease was primarily due to the decreased impact of potential uncollectible amounts for advances to suppliers and other current assets, and reflects improved credit management practices and a stronger collection process.
Net loss
Net loss was RMB26.5 million (US$3.6 million) in the first half of 2024, compared with RMB7.2 million in the same period of last year.
Loss per share
Basic and diluted loss per share were both RMB7.42 (US$1.02) in the first half of 2024, compared with basic and diluted loss per share of RMB6.88 in the same period of last year.
Liquidity
As of June 30, 2024, the Company had cash and cash equivalents and restricted cash of RMB40.5 million (US$5.6 million), compared with RMB36.2 million as of December 31, 2023.
Business Developments
On August 5, 2024, the Company announced that it signed a Memorandum of Understanding with Velo Labs Technology Ltd., a global fintech company, to establish a battery infrastructure investment ecosystem in Thailand. This collaboration aims to accelerate the development of battery bank operations within the UOTTA battery-swapping ecosystem.
On July 3, 2024, the Company announced that it had signed a Memorandum of Understanding (“MoU”) with Pattaya AI Terminal Co., Ltd. to jointly drive the strategic development of green logistics and electric vehicle (“EV”) infrastructure in Thailand.
On June 5, 2024, the Company announced that its UOTTA technology and battery swapping station model is to be adopted in a strategic collaboration between UNEX EV B.V. (“UNEX”) and Associação Nacional dos Transportes Rodoviários em Automóveis Ligeiros (“ANTRAL”). ANTRAL is an association of companies in Portugal, representing public passenger road transport companies operating light vehicles designated as taxis. Through their collaboration, UNEX and ANTRAL aim to significantly reduce greenhouse gas emissions in the transport sector by 2030, in line with the European Union’s decarbonization targets and Portugal’s regulatory requirements for taxi vehicles.
Exchange Rate Information
This announcement contains translations of certain Renminbi (“RMB”) amounts into U.S. dollars (“US$”) at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at the rate of RMB7.2672 to US$1.00, the exchange rate on June 30, 2024, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on June 30, 2024. The Company makes no representation that the Renminbi or U.S. dollars amounts referred to could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.
Safe Harbor Statements
This press release may contain “forward-looking statements”. Forward-looking statements reflect the Company’s current view about future events. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company’s current expectations and projections about future events that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors can identify these forward-looking statements by words or phrases such as “may,” “will,” “could,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “propose,” “potential,” “continue” or similar expressions. The Company undertakes no obligation to update or revise publicly any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s registration statement and other filings with the U.S. Securities and Exchange Commission.
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