The Fintech 5 with Abdul Abdirahman — Principal at F-Prime Capital
In this ongoing series of blog posts, we’re introducing you to some of the sponsors, partners, advocates, and entrepreneurs who make up the unique Fintech Sandbox community, and without whom our small team could not provide fintech startups with access to critical data and resources, entirely for free.
Next up is Abdul Abdirahman, a Principal with F-Prime Capital and an erstwhile Advocate for Fintech Sandbox. If you were at Boston Fintech Week in October, you may have seen Abdul demo and launch the newly revised F-Prime Fintech Index during a plenary session. His talk was entitled State of Fintech: F-Prime Capital Fintech Index Highlights.
Briefly, the F-Prime Fintech Index tracks the stock market performance of ~50 emerging and publicly traded financial technology companies, and allows for comparisons between individual companies as well as fintech subsectors such as payments, banking wealth management, insurance, and proptech.
Question 1. Abdul, can you tell us about the intent behind the Fintech Index?
The F-Prime Fintech Index was launched as a way to track disruptive, publicly-traded fintech companies. The F-Prime Fintech Index serves as a benchmark for the development of this rapidly maturing sector and closely tracks the leading disruptors.
Q 2. Why is F-Prime Capital, a venture capital firm which invests in private companies at the earliest stages, tracking the performance of publicly traded fintech stocks?
At F-Prime Capital, we are thematic investors who spend a lot of time in the fintech space. We have been investing in this growing sector for more than a decade and, alongside our sister funds at Eight Roads, we have been fortunate to back some large and category-defining disruptors including Alibaba, Toast, Quovo/Plaid, Fireblocks, Flywire, and many more. As investors, we closely monitor public markets to inform our thinking across different fintech sub-categories and understand what potential exits might look like. This process often involves pulling revenue multiples, financial metrics, and other non-financial data. These data points — and the insights we compile in our newsletter and State of Fintech reports — can be useful to entrepreneurs, operators, and fellow investors who want a real-time window on the market.
Last year we went a step further and added vertical-specific benchmarks. These benchmarks go a level deeper than top-line metrics (such as revenue, growth rate, and multiples) and capture vital metrics that require digging into public and private reports. For example, if you are building in the payment space, wouldn’t it be great to see how take rates are trending, and which companies are garnering the highest take rates? The F-Prime Fintech Index now lets you do that — and much more.
Q 3. What should we know about the new Fintech Index functionality?
The new functionality on the Fintech Index includes:
- Company and sector comparison by revenue, growth, margin, multiple, and more,
- Adaptive visual multiples and benchmarks
- Head-to-head company comparisons
- Adaptive sector- and vertical-specific benchmarks
- Time series of historical metrics by sector and revenue growth
To learn more about how to use the new-look F-Prime Fintech Index, check out this brief video overview. Additionally, the October 2023 edition of our Fintech Prime Time newsletter demonstrates how we’re using these new tools in our own industry analysis.
Q. 4. What are the most interesting insights you’ve recently gleaned from the Index?
There are three fintech disruptors with market caps of $50B+, and they have very different revenue profiles. As a result, they garner very different multiples to get to the $50B+ valuation. Vertical SaaS company Shopify has revenues of $6.7B and an LTM revenue multiple of ~14x, whereas payment companies PayPal and Mercado Libre have LTM revenues of $29B and $13B respectively, along with LTM revenue multiples of 2.4x and 6x. Investors love a good SaaS + payments business, and Shopify delivers, 29% and 71%, respectively.
Q 5. Do you have any predictions for the state of fintech in 2024?
The overall climate for fintech in 2023 was “regulation on, risk off” with heightened scrutiny, rule-making, and enforcement by regulators. We will continue to see increased regulatory scrutiny in 2024. However, we also think the fintech correction in private markets will stabilize in the new year. Our full State of Fintech report will be launched soon — sign up for our fintech newsletter to gain access when we release it in February.
Bonus Q 1. Why did you choose to launch the revised Fintech Index during Boston Fintech Week?
As a Boston-based firm with a strong partnership with the Fintech Sandbox, we were happy to launch the new-look F-Prime Fintech Index at Boston Fintech Week. Boston has a great fintech community of founders, operators, investors, and other folks in the financial services ecosystem, and we know the Index has many fans among them. We received a lot of positive feedback on the changes, and always welcome suggestions from our Boston Fintech community.
Bonus Q 2. What impact do you think GenAI will have on wealth management?
Within fintech, one of our key investment areas is wealth and asset management. We think there are many opportunities for GenAI to have an impact in this arena, especially when it comes to how financial advisors work with their clients. In short, we believe GenAI will act more like a co-pilot than a driver for fully autonomous finance in the wealth management sector — at least in the short-to-medium term. If you’re interested, a recent edition of our fintech newsletter delved into this topic.
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