In this article, we discuss the 10 best fintech startups investors are flocking to.
The COVID-19 pandemic has accelerated the growth of financial technology companies that have been steadily gaining importance in the finance world over the past few years as digitization brings businesses online and a new generation of entrepreneurs, with an aversion towards traditional finance, take helm at major corporations. The rise of cashless societies and cryptocurrencies have also impacted the industry in innumerable ways. According to Market Data Forecast, the fintech market is expected to be worth $324 billion by 2026.
This represents a compound annual growth rate of close to 25% for the industry. There are many startups vying for relevance in the fintech universe, some of which have been listed below. In addition to these startups, already established financial services companies like Visa Inc. (NYSE: V), Square, Inc. (NYSE: SQ), and Intuit Inc. (NASDAQ: INTU) are also uniquely placed to take advantage of the explosive growth potential of fintech. On June 2, Visa Inc. (NYSE: V) reported that global processed transactions in May had grown to 121% of 2019.
Similarly, Square, Inc. (NYSE: SQ), the digital payments company with over $400 million invested in crypto-related assets, has registered a record stock rally over the past year that saw share price climb to an all-time high of $283 in February before plummeting in tandem with other crypto stocks on the market. The company is also reportedly considering checking and savings accounts for customers in a move aimed towards expanding reach in the small and medium business world. The firm already offers industrial clients special services.
In addition to Square, Inc. (NYSE: SQ) and Visa Inc. (NYSE: V), Intuit Inc. (NASDAQ: INTU), the California-based financial software firm, which beat market expectations on earnings per share and revenue at the height of the pandemic towards the end of the 2020 summer, has also been gaining recently. On May 25, the firm reported earnings results for the third fiscal quarter, posting earnings per share of $6.07 and a revenue of more than $4.7 billion, clocking above lowered guidance issued earlier.
There is little doubt that the fintech industry has turned the finance world on its head. The electric vehicle industry has disrupted the auto sector at lighting speed, giving hope to other tech-enabled firms seeking to establish themselves in other markets. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 best fintech startups investors are flocking to. These startups were ranked keeping in mind the problems in the fintech space they aim to solve, the money they have raised so far, and the quality of the products or services they offer.
Best Fintech Startups Investors Are Flocking To
10. Carta
Carta is a technology company that provides equity management services. The firm markets capitalization table management and valuation software. The firm has so far raised close to $630 million in funding over seventeen rounds, with the latest round held in February. Some of the lead investors in the startup include Tribe Capital and Moonshots Capital. The company is valued at close to $7 billion but does not have plans to make its debut on the stock market anytime soon. The firm makes money by selling portfolio management software as well.
Just as Carta is a giant of the fintech startup universe, The Goldman Sachs Group, Inc. (NYSE: GS) is a leader of the financial services industry. On June 18, news platform CNBC reported that The Goldman Sachs Group, Inc. (NYSE: GS) had started trading in Bitcoin with merchant bank Galaxy Digital as crypto-related investments soared in popularity.
At the end of the first quarter of 2021, 77 hedge funds in the database of Insider Monkey held stakes worth $5 billion in The Goldman Sachs Group, Inc. (NYSE: GS), up from 76 the preceding quarter worth $4.6 billion.
Just like Visa Inc. (NYSE: V), Square, Inc. (NYSE: SQ), and Intuit Inc. (NASDAQ: INTU), The Goldman Sachs Group, Inc. (NYSE: GS) is one of the best fintech-related stocks investors are flocking to.
In its Q1 2021 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and The Goldman Sachs Group, Inc. (NYSE: GS) was one of them. Here is what the fund said:
“Financial services firm Goldman Sachs is a best-in-class franchise with a premier brand that attracts top talent and sustains market share across its businesses. We believe this has helped Goldman weather recent market volatility. In addition to de-levering risk-weighted assets, Goldman is also growing its digital investment footprint through the expansion of features on its Marcus Invest platform. The company’s stability—and ability to grow its brand even in tough times—has kept us invested over the long term.”
9. Blend
Blend is a fintech company that primarily markets a digital platform to offer different types of loans. It is placed ninth on our list of 10 best fintech startups investors are flocking to. The company sells consumer-centric banking services for mortgage and consumer loans. The firm has raised close to $670 million in funding so far over nine rounds, with the latest round held in January that brought in close to $300 million. Canapi Ventures is a leading investor in the startup that is valued at over $3.3 billion.
A similar investment to Blend in the stock market is Rocket Companies, Inc. (NYSE: RKT), the technology-centered real estate, ecommerce, and mortgage business. On June 8, investment advisory Argus initiated coverage of Rocket Companies, Inc. (NYSE: RKT) stock with a Buy rating and a price target of $23.
At the end of the first quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $208 million in Rocket Companies, Inc. (NYSE: RKT), up from 16 the preceding quarter worth $222 million.
Just like Visa Inc. (NYSE: V), Square, Inc. (NYSE: SQ), and Intuit Inc. (NASDAQ: INTU), Rocket Companies, Inc. (NYSE: RKT) is one of the best fintech-related stocks investors are flocking to.
In its Q1 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Rocket Companies, Inc. (NYSE: RKT) was one of them. Here is what the fund said:
“We own Rocket Companies which we think is a great mortgage finance company with a successful history of innovation, growth, and cash generation. We think Rocket has several competitive advantages, including its technology and marketing platforms. One way this manifests is retention rates far superior to the rest of the industry (client and refinance retention rates of 80%+ versus less than 20% for the industry).
Rocket went public last year amidst record low interest rates that led to record revenues, margins, and profits. Rising interest rate concerns have kept a lid on the stock. We bought it last year after doing work on what the longer term potential looked like, as well as what earnings might be in a more normalized environment. We think Rocket is a great example of “time arbitrage.” We are taking the long view when others focus on the coming quarters.
The stock is in the $20s, and we believe it could be worth many multiples of that over the next decade. We intend to be longterm owners. This quarter, the price surged 70%+ in one day and more than doubled over 3 days. This brought it close to our estimate of its present value. Given our assessment of the risk (downside in scenarios of quickly increasing rates) relative to our upside, we exercised our “liquidity option,” so to speak, and sold 21% of our position during the surge. We don’t love to trade around our positions, but we do intend to capitalize on volatility to create value when we get the chance.”
8. Addepar
Addepar is a digital wealth management platform that specializes in data analytics. It is ranked eighth on our list of 10 best fintech startups investors are flocking to. The startup has raised close to $500 million in funding so far over seven rounds, with the latest round earlier this month bringing in more than $150 million. Some of the lead investors in the startup include DI Capital Partners and Westap, among others. The company is valued at close to $2.2 billion but does not have plans to go public anytime soon.
In the financial services space, Invesco Ltd. NYSE: (IVZ) is a good investment option along the lines of Addepar. Invesco Ltd. NYSE: (IVZ) is an investment manager based in Atlanta that pays a regular and healthy dividend. On June 2, the stock jumped after news publication The Wall Street Journal reported that Invesco Ltd. NYSE: (IVZ) was being tapped to manage the $400 billion social welfare fund of the Chinese government.
At the end of the first quarter of 2021, 32 hedge funds in the database of Insider Monkey held stakes worth $1.2 billion in Invesco Ltd. NYSE: (IVZ), down from 34 in the previous quarter worth $936 million.
Just like Visa Inc. (NYSE: V), Square, Inc. (NYSE: SQ), and Intuit Inc. (NASDAQ: INTU), Invesco Ltd. NYSE: (IVZ) is one of the best fintech-related stocks investors are flocking to.
7. Wise
Wise is a fintech company used by millions to make cross border transactions. It is placed seventh on our list of 10 best fintech startups investors are flocking to. The firm has raised more than $1.3 billion in funding so far over thirteen rounds. The latest round of funding, held in May, brought in $150 million for the startup. Some of the leading investors in the firm include Silicon Valley Bank UK and Lone Pine Capital, among others.
Another great stock that has a similar business model to Wise is PayPal Holdings, Inc. (NASDAQ: PYPL), the payments solutions company that has hundreds of millions of users spread across mobile, web, and other platforms. On June 21, investment advisory Bank of American maintained a Buy rating on the stock with a price target of $323.
At the end of the first quarter of 2021, 143 hedge funds in the database of Insider Monkey held stakes worth $14.7 billion in PayPal Holdings, Inc. (NASDAQ: PYPL), down from 147 in the previous quarter worth $15.9 billion.
Just like Visa Inc. (NYSE: V), Square, Inc. (NYSE: SQ), and Intuit Inc. (NASDAQ: INTU), PayPal Holdings, Inc. (NASDAQ: PYPL) is one of the best fintech-related stocks investors are flocking to.
In its Q4 2020 investor letter, Polen Capital Management, an asset management firm, highlighted a few stocks and PayPal Holdings, Inc. (NASDAQ: PYPL) was one of them. Here is what the fund said:
“For the full year 2020, one of the top performers was PayPal, which we purchased in 2019, the company continues to take market share in digital payments and has seen an acceleration in user adoption and engagement, especially within their “silver tech” or older user demographic. We expect many more years of ongoing double-digit growth from their various business segments and new initiatives.”
6. Spring Labs
Spring Labs is a Los Angeles-based data sharing, security and consumer privacy company, It is ranked sixth on our list of 10 best fintech startups investors are flocking to. The company raised close to $70 million in funding over three rounds, with the latest round held in April this year bringing in over $30 million for the firm. One of the lead investors in the company is TransUnion, a credit reporting agency. Spring Labs has been developing security solutions for blockchain systems as they gain in popularity.
As security and privacy concerns on the internet grow, companies like CrowdStrike Holdings, Inc. (NASDAQ: CRWD) are becoming central to the running of everyday business. CrowdStrike Holdings, Inc. (NASDAQ: CRWD) markets cloud-based endpoint and workload protection services. The company recently beat market expectations on earnings per share and revenue for the first three months of 2021.
At the end of the first quarter of 2021, 77 hedge funds in the database of Insider Monkey held stakes worth $5.2 billion in CrowdStrike Holdings, Inc. (NASDAQ: CRWD), down from 92 in the previous quarter worth $7.2 billion.
Just like Visa Inc. (NYSE: V), Square, Inc. (NYSE: SQ), and Intuit Inc. (NASDAQ: INTU), CrowdStrike Holdings, Inc. (NASDAQ: CRWD) is one of the best fintech-related stocks investors are flocking to.
In its Q1 2021 investor letter, Carillon Tower Advisers, an asset management firm, highlighted a few stocks and CrowdStrike Holdings, Inc. (NASDAQ: CRWD) was one of them. Here is what the fund said:
“CrowdStrike provides cloud-based software used in the security of computers, servers, and mobile phones. The stock pulled back a bit during the quarter as investor sentiment shifted away from stocks with higher valuation multiples. We remain shareholders, as the protection of enterprise assets and cloud workloads from various forms of cyberattacks remains more important than ever for many enterprises, and we believe this will continue to result in a strong demand environment for CrowdStrike’s innovative products and services.”
5. Next Insurance
Next Insurance is an online insurance company. It is placed fifth on our list of 10 best fintech startups investors are flocking to. The company has raised over $880 million in funding so far, with the latest round in April bringing in close to $250 million. The startup is now valued at close to $4 billion, making it one of the most lucrative fintech firms in the United States. Some of the lead investors in the firm include FinTLV Ventures and Battery Ventures, among others.
Ally Financial Inc. (NYSE: ALLY), the Michigan-based bank holding company, also provides digital insurance services. On May 27, investment advisory Deutsche Bank started coverage of Ally Financial Inc. (NYSE: ALLY) stock with a Buy rating and a price target of $65. The company posted more than $6 billion in revenue last year.
At the end of the first quarter of 2021, 51 hedge funds in the database of Insider Monkey held stakes worth $2.8 billion in Ally Financial Inc. (NYSE: ALLY), down from 57 in the preceding quarter worth $2.5 billion.
4. Chime
Chime is a financial services company that provides mobile banking services free of charge. It is ranked fourth on our list of 10 best fintech startups investors are flocking to. The startup has so far raised $1.5 billion in funding over ten rounds, with the latest round in September bringing in more than $500 million for the firm. Some of the lead investors in the company include Melo Ventures and Crosslink Capital, among others. The company is valued at over $14 billion and has been named on the CNBC Disruptor 50 list.
Another stock to watch out for in the financial services space is Intuit Inc. (NASDAQ: INTU), the financial management and software firm with a market capitalization of close to $130 billion. Intuit Inc. (NASDAQ: INTU) is a great option for income investors. On May 25, the firm declared a quarterly dividend of $0.59 per share, in line with previous. The forward yield was 0.54%.
At the end of the first quarter of 2021, 68 hedge funds in the database of Insider Monkey held stakes worth $4.7 billion in Intuit Inc. (NASDAQ: INTU), the same as in the preceding quarter worth $4.6 billion.
L1 Capital International Fund mentioned Intuit Inc. (NASDAQ: INTU) in its Q3 2020 investor letter. Here is what the fund said:
“Intuit epitomises the consistency, predictability and longevity of growth we seek in high quality businesses.
Intuit currently operates through 2 main divisions:
Software for financial and business management as well as integrated payroll solutions, merchant payment processing solutions, and financing for small businesses in the US and key global markets; and
Do‑it‑yourself and assisted income tax preparation software products and services sold in the U.S. and Canada.
Intuit also provides personal financial software and services through its Mint and Turbo products and has announced the acquisition of Credit Karma for US$7.1 billion which will significantly expand its personal finance capabilities, creating a third leg to Intuit’s growth stool…” (Click here to view the entire text)
3. Stripe
Stripe is a financial services company famous for payments processing solutions. It is placed third on our list of 10 best fintech startups investors are flocking to. The startup has raised more than $2.2 billion in funding so far over sixteen rounds. The latest round in March brought in $600 million worth of new funding for the company. Stripe is valued at close to $100 billion and is on the list of firms that are planning to make their stock market debut soon. Some of the lead investors in the firm are Allianz and AXA Group, among others.
California-based EV maker Tesla, Inc. (NASDAQ: TSLA) is one of the companies that have backed Stripe to succeed. On June 23, Tesla, Inc. (NASDAQ: TSLA) announced that it had opened an EV charging station in China that had solar and wind energy storage capability.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Tesla, Inc. (NASDAQ: TSLA) with 24.4 million shares worth more than $16.3 billion.
Tesla, Inc. (NASDAQ: TSLA) was mentioned by Baron Partners Fund in its Q1 2021 investor letter. Here is what the fund said:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”
2. Robinhood
Robinhood is a financial technology company that owns perhaps the most famous stock trading application in the world. It is ranked second on our list of 10 best fintech startups investors are flocking to. The company has raised more than $5.6 billion in funding so far over twenty-three rounds, with the latest round in February raising more than $2.3 billion. Some of the lead investors in Robinhood include Ribbit Capital and Index Ventures, among others.
As the fintech sector explodes, stocks like Square, Inc. (NYSE: SQ) have become an investor favorite over the past few months. On June 4, the share price of the company jumped close to 3% as CEO Jack Dorsey outlined plans for a Bitcoin hardware wallet. Square, Inc. (NYSE: SQ) is one of the largest institutional holders of Bitcoin.
At the end of the first quarter of 2021, 92 hedge funds in the database of Insider Monkey held stakes worth $9.2 billion in Square, Inc. (NYSE: SQ), up from 89 in the preceding quarter worth $8.8 billion.
In its Q1 2021 investor letter, RiverPark Funds, an asset management firm, highlighted a few stocks and Square, Inc. (NYSE: SQ) was one of them. Here is what the fund said:
“We established a position in leading Financial Technology provider Square during the quarter. Through one integrated system, SQ is a hybrid of two businesses: its Seller Business (charging small and medium-sized businesses about 3% for transaction payment processing, plus other services such as instant funds access, and software for everything from customer engagement to payroll), and its Cash App (originally for person-to-person cash transfers and now a growing digital financial services provider for consumers).
The combined business has grown gross profit at a 37% CAGR over the past five years to $2.7 billion (due to pass through costs, gross profit is more reflective of top-line growth) and we believe that the company has an enormous long-term runway, as it has less than a 2% share of a more than $160 billion market. It is our view that the company’s Cash App (which has grown
from nothing in 2015 to $1.2 billion gross profit last year) has a particularly large opportunity with its powerful ecosystem of digital financial services including digital wallets, direct deposits, stock trading, bitcoin trading, and business and tax services, which are all relatively new. The vast majority of Cash App’s more than 36 million users are younger and, importantly, are willing to replace their bank and other financial services accounts with the app.
We estimate that the company can grow its gross profit more than 30% and EBITDA more than 50% annually for the foreseeable future, and while most of the company’s current profit is from its Seller Business, we believe most of Square’s future value will be from its Cash App business.”
1. Klarna
Klarna is a Sweidsh fintech company that markets payments solutions for small businesses. It is placed first on our list of 10 best fintech startups investors are flocking to. The firm has raised more than $3.7 billion in funding so far over twenty-seven rounds. The latest round in June raised over $650 million for the company. The lead investors in the startup include SoftBank Vision Fund and Dragoneer Investment Group, among others. The startup is valued at close to $50 billion.
Another big name in the payments industry is Visa Inc. (NYSE: V), the California-based firm that facilitates digital and electronic payments. On April 28, Visa Inc. (NYSE: V) declared a quarterly dividend of $0.32 per share, in line with previous. The forward yield was 0.55%.
At the end of the first quarter of 2021, 164 hedge funds in the database of Insider Monkey held stakes worth $26.5 billion in Visa Inc. (NYSE: V), down from 166 in the preceding quarter worth $23.5 billion.
Here is what ClearBridge Investments has to say about Visa Inc. (NYSE: V) in its Q1 2021 investor letter:
“To make room for these new names with more attractive outlooks related to the reopening, we sold out of companies where the thesis is not playing out at the pace we expected including Visa.”
You can also take a peek at Billionaire Stan Druckenmiller’s Top 10 Stock Picks and Billionaire Julian Robertson On Interest Rates and His Top Stock Picks For 2021.
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Disclose. None. 10 Best Fintech Startups Investors are Flocking To is originally published on Insider Monkey.
