Fintech has always seen boom years, gathering outstanding amounts of capital and creating more successful scale-ups. Since the economic conditions are unstable, it is a question of the ability of fintech to attract private equity funds. This article discusses private equity, its market prospects, and how fintech should attract the right investor.
Difference between venture capital and private equity
Many fintech companies are familiar with venture capital. It is one of the best methods to secure finance for upcoming fintech. It is because of the relative inception of the fintech sector to date. It has gained more attention than private equity. Venture capital is more focused on younger and smaller startups. Venture capitalists get a small stake in promising companies. They hope these companies will give high returns and multiply in a short period.
Private equity is concentrated more on matured companies that achieved success and growth.
Some businesses may have some financial obligations. So they need some potential investors to restructure the company. Private equity firms take a significant stake and may acquire a public company to delist it.
The investors may look into all aspects of the business. It includes cash flow, Total Addressable Market (TAM), Lifetime Value (LTV), Customer Acquisition Cost (CAC), profitability at a unit of economic level, and competitive landscape. They expect three to five returns from the investments. They may think the valuation is too high. They cannot make money if the structure is not added to the deal. The better way is to make fewer but concentrated investments and observe them.
There should be a strategy-driven and tactical process to get fair returns in three to five years. The organization should be professional. It makes the transition from venture capital to private equity to the founders.
Current private equity market
Private equity investment has been overgrown over the last five years. There is record funding in cybersecurity, blockchain and crypto, and wealth tech. Private equity will focus more on investing in maturing sub-sectors to address long-term market trends.
In the short term, private equity investments may focus on investing in publicly traded fintech, which suffered a deep decline in the public markets. Venture capital may allow private equity in private markets for the medium term. Profitability and revenue growth should be the center of attraction to attract private equity investment. To gather the interest of the investors, proving the ability to generate cash flow is essential.
The article has been published by the editorial board of the Fintek Diary. Happy Reading. For more information please visit www.fintekdiary.com
