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How to invest in private companies in FinTech

FinTech is rapidly emerging as the leading sector for startup investment. For long-term investors with relatively high risk tolerance, FinTech stocks can be an excellent means of capitalizing on one of the most exciting growth trends in the business world. 

There is no guarantee FinTech investment will increase at the rates it saw in 2021, but digital technology, cryptocurrencies, and financial software are reshaping e-commerce. As payment networks, online lending, personal finance, and banking are becoming increasingly digitized, FinTech is positioned to continue leading the way. 

How to find private companies to invest in

If you think the time is right to move into FinTech stocks, you should consider three useful approaches to investing in private companies: 

  1. Learn more about how to assess which stocks to buy: look for FinTech companies with intellectual property that is creating barriers for rivals and aim for stocks that are growing their total market by expanding products and services.
  2. Understand the risk in each of your startup investments: every investment has risks. The best investors in private companies use risk to their advantage to determine a company’s potential for investment. You should understand what risks are involved and what needs to happen for a good return.
  3. Diversify your investments across sectors and maturities: what you invest in should change over time based on technology diffusion, investment trends, and macroeconomics. Diversify your portfolio.
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Rating tools

Rating tools are helpful when it comes to improving and perfecting the way we research growth stocks. The IBD Composite Rating is a comprehensive tool, containing a mix of five other IBD stock ratings: 

  • EPS (year-over-year gains) 
  • Relative Strength (how a stock has performed compared to peers)
  • Accumulation/Distribution (recent trends in institutional buying and selling)
  • Sales+Margins+ROE (sales growth, profit margins and return on equity)
  • Industry Group Ranking (group strength and rotation) 

The IBD combines the values of all those ratings to arrive at a single score of 1 to 99, where the best is 99. These metrics will tell you all you need to know about a company and how to invest in private companies.

Venture capital

If you have a large amount of capital to invest, you may want to consider putting your money in the stewardship of large venture capital funds that are highly-exposed to FinTech. Funds like Anthemis and Route 66 are specialists in financial services and focus their investing entirely on the sector. FinTech Collective is another early-stage venture fund that is completely focused on FinTech and has made investments in payments and banking, as well as across capital markets, wealth and asset management, lending, and insurance.

Angel investing

If you prefer to handpick your own private investments, angel investing is becoming even more accessible thanks to some of the same technology angels are investing in. Equity crowdfunding gives investors the ability to invest in FinTech startups from the comfort of their own living rooms. In increments as small as US$1000, FinTech enthusiasts can identify top startups looking for funds, research their potential, see who is also investing in the current round, and then invest alongside other investors. Companies raising via equity crowdfunding then aggregate all these small investors from around the world. 

The FinTech future

New forms of FinTech are constantly appearing and staying up to date on new technology is worth your time if you’re interested in investing in private companies: 

  • Blockchain is the software technology behind Bitcoin and other cryptocurrencies. A shared public ledger tracks transactions and ensures that the record of those transactions remains transparent and tamper-proof. 
  • B2B payments until now have not been as digitized as consumer transactions, but they see higher volumes, and the business-to-business payment industry is shifting from paper checks to automated software tools and digital platforms. Incumbents in the B2B payments market include Worldpay, First Data, and Total System Services.
  • BNPL, or buy now, pay later platforms, first became integrated into payment systems in e-commerce and are now rapidly expanding to other industries. Leading BNPL platforms are partnering with other large companies and BNPL is now moving from e-commerce to other sectors such as travel. 

Investing in FinTech is an opportunity for more sources of capital and more investors to access the space. The discovery tool in the Finnovating platform makes it much easier to find private FinTech companies from all over the world. Startups and potential investors can browse a constantly updated listing of available challenges and connect with other businesses that may be launching new innovative projects, searching for capital, or proposing partnerships. 

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The «open-to-capital» button can quickly let you identify which companies are open to investment. The unique platform also lets you search the world’s largest FinTech database according to activity, company size, or business model. 

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