challenger bank trouble

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April 25, 2023

New gold

Hi there,   Here’s this week’s hot or not.   But first…some news.   By the end of May (probably sooner), all of our research will be moving behind the paywall.     Right now, roughly 30% is publicly available, but that will stop.   100% of future research will be for customers only.   If you’d like to become a customer of the CB Insights platform and get access to our data, research, and tons of proprietary quantitative and qualitative data submitted directly by companies and their customers, we’d love to chat.   Sign up here.

Hot or not

Hot: Locking up data Twitter, Reddit, and Stack Overflow have all announced plans to start charging for access to their APIs.   Why?    Their large datasets are increasingly valuable for AI developers like Google and OpenAI.   Expect publishers with valuable text content to become a licensing battleground for large language model (LLM) makers and for language acquisition costs (LAC) to become a real expense. Weeks ago, we discussed the impending language licensing costs and identified 21 potential licensing targets that LLM makers need to lock down asap.

Not: Overfed unicorns   Many unicorns have raised significant funding — over $300M at the median — to reach a $1B+ valuation.   But many of these companies have seen capital efficiency suffer as a result.    Looking at the valuation:funding ratio illuminates how efficient a company has been in translating funding into value.    The unicorns of 5 years ago relied less on outside investment to build their valuation, when the median unicorn exited at a valuation of 6.9x its funding. Today, the median ratio has fallen by roughly a third.

Public markets highlight warning signs for overfed unicorns.    As we previously highlighted, many of yesteryear’s unicorn darlings now have market caps that amount to less than total equity funding raised.   Funding ≠ business model.

Hot: Sanabil   Venture activity is continuing to slow down — funding and deals dropped yet again in Q1’23.   Sanabil Investments — the venture arm of Saudi Arabia’s Public Investment Fund — on the other hand, is kicking things into high gear.    The firm increased its deal activity last year, and it’s also investing more capital year-over-year.   It now commits roughly $3B a year in capital, up from $2B in 2021.   With a vast pot to dole out, what is Sanabil’s top investment priority: cybersecurity, energy, edtech? CB Insights customers can find out in this Sanabil investment thesis map.

Not: Challenger banks One of Europe’s top-funded fintechs, N26, is facing a potential 67% valuation cut.    Like other challenger banks (Chime, Monzo, etc.), it takes a digital-first approach to offer retail banking services.   For the challenger bank sector at large, funding is drying up after years of rapid expansion. Investors are questioning whether these companies can compete in a non-ZIRP environment and if they have a credible path to profitability.   Unfortunately, a slick UX and responsive mobile app are not enough.   Expect that valuations will fall across the neo/challenger bank market.   Brazil’s Nubank, the biggest public company in the space, has seen its market cap fall by more than 50% since its 2021 IPO. CB Insights customers can get a full rundown on the challenger bank sector here.

Hot: GenAI chatter Recently, news broke that Samsung was considering switching its default search engine to the new GPT-powered Bing.   How did Google investors react? Shares dropped as much as 4%.   This must’ve created some modest agita within Google as well.   Generative AI’s market influence is increasingly making itself known following the launch of AI-powered chatbot ChatGPT. It isn’t just stirring the pot at Google — it has gripped the attention of executives everywhere.   Earnings call mentions of the topic have skyrocketed in recent months, rising more than 16x from Q4’22 to Q1’23.   But which company is talking about it the most? Hint: It mentioned the term 33 times in Q1’23 alone. CB Insights customers can discover GenAI’s biggest fans using this earnings transcript search.

Not: LatAm funding   Despite bucking the downward trend in Q4’22, Latin America funding fell back down to $0.6B in Q1’23.   This marks a 54% decline quarter-over-quarter and the first time LatAm funding has fallen below $1B since 2020.   Deal count for the region also dropped, falling from 218 to 157 QoQ.    Learn more about what went down in LatAm in this report.   And check out how other regions fared in our Q1’23 reports on: Africa Asia Europe The US

I love you.    Anand  @asanwal  P.S. Expert guests from Lululemon and XRC Labs joined our analysts to reveal the top retail tech trends to watch. Dive into their discussion in this briefing.

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