Every Company Will Spin Out a Fintech Company (August 2021 Fintech Newsletter)

Every Company Will Spin Out a Fintech Company

Behind every great company lies a great team, a great product, some auspicious timing, and… a lot of internal tools. Sometimes, these tools break free of their parents, becoming startups and later great companies in their own right — because the process improvements they yielded have many more prospective customers than the “single company” environment where they came from.

‌This “company —> tool —> company” cycle is not new, of course. Confluent just went public and is now worth $13.5B, having started as a tool within LinkedIn. MongoDB ($24B!) came out of a problem/solution within DoubleClick (which Google bought for about 1/10th that price). And Slack, of course, was the internal communications tool at game company Glitch… which became Slack. But as the number of fintech “decacorns” (>$10B) increases — an explosion of these fintech tools is coming, and we continue to be on the hunt for more. The best entrepreneurs tend to be deeply steeped in a problem area, and having solved the problem within a company often provides irreplaceable expertise when doing it at a startup.‌

At Affirm, a problem with synthetic fraud has now yielded an industry leader in SentiLink. At Square, complexity in identity verification has yielded Persona. At Robinhood, real-time money movement wasn’t possible, but underwriting the probability of fund transfer success was — which yielded Parafin. Privacy.com was launching cards, which yielded Lithic. More and more of these are coming, largely because of the still complex task of launching a fintech company from scratch.

Sometimes these big businesses stay within the walls of the parent. Amazon Web Services (AWS) famously came out of Amazon — the ultimate “internal tool” for the core operation of hosting the Amazon website and dealing with peak holiday shopping traffic.

‌What makes the “future fintech tools” concept so interesting is that there is a lack of modern anything when it comes to launching a financial services product or company. Fraud is a huge problem, customer support is a huge problem, risk is a huge problem, interest allocation is a huge problem, etc. Some of these are highly generalizable, some are not — but just like DoubleClick and MongoDB, it’s likely that some of the largest financial services companies will emerge from problems that emerge from building, well, financial services companies.

Alex Rampell is a General Partner at Andreessen Horowitz, where he leads the firm’s $1 billion Apps practice.

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Anish Acharya Anish Acharya is an entrepreneur and general partner at Andreessen Horowitz. At a16z, he focuses on consumer investing, including AI-native products and companies that will help usher in a new era of abundance.

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Seema Amble is a partner at Andreessen Horowitz, where she focuses on SaaS and fintech investments in B2B fintech, payments, CFO tools, and vertical software.

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