What Makes a FinTech Unicorn? Factors Influencing Startup Valuation

ABSTRACT This study is aimed at examining a group of non-financial factors that influence the post money valuation of fintech unicorn companies using empirical methods. The correlation between unicorn valuation and such factors relating to CEO/founder characteristics, location, business model, media effect as well as firm-specific characteristics are modelled based on a sample of 278 fintech startups, with data sourced mainly from CBInsights and Crunchbase. This study finds a significant effect of founder/CEO’s level of education, media/halo influence and firm-specific characteristics including its intellectual capital, acquisitions and investments on unicorn valuation. In addition, there is evidence to support that some business models do perform better than the others. However, no significant evidence was found for the effect of founder/CEO’s industry experience and number of companies founded on unicorn valuation. The 2-step Heckman model was employed for the purpose of the analyses to correct for sample selection bias, controlling for total funding amount, number of funding rounds and the effect of large venture capital firms. This study is of practical importance to all stakeholders - firms, investors, analysts and regulatory authorities - with respect to the value drivers of Fintech companies. For regulatory authorities especially, the results have implications in developing ecosystems and creating policies that would amplify the probability of success of fintech startups in order to boost the overall financial services and country development. KEYWORDS: unicorns, fintech, heckman, valuation, value drivers