MAY 23, 2016

Where Sequoia, Andreessen And Other Smart Money VCs Are Betting In Fintech

Over $13B flowed into VC-backed fintech startups in 2015. CB Insights analyzed a few areas where the top VCs have bet on recently.

Investment to venture-backed startups across the fintech ecosystem — from lending and personal savings to payments and insurance — rose to over $13B in 2015.

As the number of startups across the financial services space continues to expand, one way to help separate signal from noise is to follow where smart VC money is placing bets on emerging business models and technologies. Some of the hot areas, as we’ll see below, include auto and life insurance, point-of-sale credit, and solutions for institutional investors.

(For more on how we selected the 23 VC firms, see the note at the end of this post.)

Smart money VC investment into fintech slowed down in 2015

Looking at fintech deal activity by these 23 VC firms over the last five years highlights a notable drop in total investments between 2014 and 2015. As the chart below shows, deal activity decreased 15% on a year-over-year basis between 2014 and 2015, after rising 26% between 2013 and 2014.

At the current run-rate, 2016 will see a 15% rise in year-over-year fintech deal activity, including new and follow-on deals, with smart money VC participation. That means 2016 deal activity would finish the year roughly equal with 2014 levels.

Interestingly, early-stage fintech deal activity in Q1’16 is down 29% from the same quarter last year, meaning the gain in activity this year is being pushed by later-stage deals. Early-stage deals in the quarter included financings to Africa-targeted mobile micro-finance startupBranch International (Andreessen Horowitz), mobile money transfer app Revolut (Index Ventures), and small- and medium-sized business financing program Blispay (NEA).

Visualizing smart money fintech investment

We used CB Insights’ Business Social Graph to visualize how smart money VC investors and target fintech companies are connected. Of the 23 investors, Accel Partners, Index Ventures, and Andreessen Horowitz were the most active in fintech since the start of 2011.

We identified several different fintech categories that the cohort of 23 smart money VCs are placing newer bets, which include:

Insurance tech: Smart money VCs including Sequoia Capital, First Round Capital, Khosla Ventures, Founders Fund and NEA have all bet on the health insurance space including Oscar Health, Clover Health, and Bright Health as well as health insurance brokers Gusto, Namelyand Zenefits. More recent investments have gone to auto insurance-comparison site Insurance Zebra (Floodgate) and yet-to-launch peer-to-peer renter’s insurance and life insurance startupsLemonade (Sequoia Capital), Jetty (Social Capital), and Ladder Life (Lightspeed Venture Partners).

Real estate investing: Startups providing real estate crowdfunding platforms both in the UK and abroad such as RealtyShares (Union Square Ventures) and Property Partner (Index Ventures) as well as real estate deal-matchmaker Cadre, which has raised $68.3M from investors including three smart money VCs: Founders Fund, Khosla Ventures, and General Catalyst.

Institutional investing tools: Startups in this area have attracted smart money VC investment for tools helping asset managers identify investment opportunities with alternative data or analytics include Kensho (Accel, NEA) and Second Measure (Bessemer Venture Partners).

Financial Services for the underbanked/underserved: Recent deals in this category include African mobile micro-finance startup Branch International (Andreessen Horowitz) and financial stability app Even (Khosla Ventures).

Point-of-sale credit/alternative lending: Point-of-sale financing platform Affirm has raised over $230M from investors including Andreessen Horowitz, Founders Fund, Lightspeed Venture Partners, Khosla Ventures, and Spark Capital. Separately, direct-lending platformBread raised a $14.3M Series A from Bessemer Venture Partners in November 2015.

Our Business Social Graph tool visualizes the intensity of smart money deals in the space:

Here’s a closer look at the smart money deals in four important areas:

Note: To analyze smart money trends, we looked at the activity of the top 23 VC firms, selected according to portfolio valuations and investment outcomes. Some of the investors are linked to relevant research briefs. Here’s our full list of 23 smart money investors:

1. Sequoia Capital
2. Benchmark Capital
3. Accel Partners
4. Greylock Partners
5. Andreessen Horowitz
6. Union Square Ventures
7. First Round Capital
8. Bessemer Venture Partners
9. Kleiner Perkins Caufield & Byers
10. New Enterprise Associates
11. Founders Fund
12. Lightspeed Venture Partners
13. Foundry Group
14. Index Ventures
15. Khosla Ventures
16. Social Capital
17. Emergence Capital Partners
18. True Ventures
19. Floodgate Fund
20. General Catalyst Partners
21. CRV
22. Spark Capital
23. Battery Ventures

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