Not all technology venture capital (VC) is flowing into Silicon Valley startups.
In the first quarter (Q1) of 2016, and for the first time ever, New York City beat Silicon Valley in terms of fintech (financial technology) financing, $690 million versus $511 million, states Fintech’s Golden Age, a new report from Accenture and the Partnership Fund for New York City. In all of 2015, investments in New York totaled $2.3 billion, triple the amount raised by the area’s fintech startups the previous year.
It’s easy to attribute New York City’s rise in fintech scene to the proximity local startups enjoy to Wall Street banks and financial firms. But there are other forces at play, said Maria Gotsch, president and CEO of the Partnership Fund for New York City and co-founder of the FinTech Innovation Lab.
Each spring, the FinTech Innovation Lab, a collaboration between Partnership Fund for New York City and Accenture, selects six early-stage and growth companies, helping them hone their technology products in partnership with participating banks, financial firms and venture capitalists. The Lab’s sponsors include American Express, Bank of America, Morgan Stanley and Well Fargo, among several other financial industry giants.
As the FinTech Innovation Lab helped startups navigate New York’s VC landscape during the past few years, Gotsch noticed that the market still valued innovative entrepreneurs with an independent streak, but was increasingly rewarding those who were open to partnering with bigger institutions. Funding began to favor collaborators instead of competitors.
Gotsch said a trend developed as startups began encountering the challenges of growing their own platform. When fintech companies “get to a certain scale, they’re partnering with large institutions,” she told Datamation.
With ready access to funding, established customer relationships and their own considerable experience in maintaining large and complex IT ecosystems, New York City’s banks and other big financial institutions became natural allies for fledgling fintech companies. Funding aside, the area’s deep-pocketed firms are also looking to cut deals with startups that can help them bolster their services offerings.
“Financial institutions have made some major acquisitions,” said Gotsch. “Exits are always good.”
In terms of technologies to keep an eye on, blockchain is starting to attract Wall Street’s attention, said Gotsch. Best known as the distributed ledger technology that powers Bitcoin, blockchain is still in its infancy among mainstream financial companies, due in part to Bitcoin’s own controversial and uncertain past.
Scaling blockchain-based platforms is another challenge or an opportunity for startups that can crack the code. Today, Wall Street in engaged in “a very serious effort to figure out how to build distributed ledger and blockchain” technologies that can scale to handle the massive transaction volumes managed by today’s banking and trading platforms, said Gotsch.
Pedro Hernandez is a contributing editor at Datamation. Follow him on Twitter @ecoINSITE.