Is interest peaking for start-up Supply Chain finance and Payment deals?

The recent news of Taulia receiving $27 million in Series D funding, and others in the payment or finance space either being acquired (Demica) or receiving private equity injections (TraxPay), begs the question are we at a peak of interest for finance and payment start-ups?

According to the data, it would appear so. Crunchbase reported that venture-based funding rounds to payments companies fell from 59 startups in the third quarter of 2013 to 41 during the second quarter of this year.

But on the flip side, there continues to be tremendous interest by private equity and non-bank investor people I talk to around supply chain finance, both investing in platforms and investing in buying receivables from B2B networks.  See Venture Capital & Private Equity's love affair with Finance Apps

Venture Capital & Private Equities’ love affair with Finance Apps - See more at: http://spendmatters.com/tfmatters/venture-capital-private-equities-love-affair-with-finance-apps/#sthash.xG7fC78S.dpuf
Venture Capital & Private Equities’ love affair with Finance Apps - See more at: http://spendmatters.com/tfmatters/venture-capital-private-equities-love-affair-with-finance-apps/#sthash.xG7fC78S.dpuf

I don’t believe these data conflict. To be a payment success story is very difficult. Just ask Square. While they recently closed on $200 million in debt financing in April led by Goldman Sachs, Square realizes that navigating the world of banking compliance is no easy task. It is hard to break through the stronghold banks have on the payment infrastructure today for a number of reasons. For one, most of us have bank accounts, and money moves between them (unless you keep your money at PayPal at a zero interest rate and use it to buy goods from vendors that don't accept credit cards).

Also, to gain critical mass in payments, you normally need to get both buyers and suppliers (or consumer and merchants) plus third parties like associations behind you to be successful. At the end of the day, when it comes to money, the one ubiquitous thing is trust. So this chicken and egg problem in payments is challenging.

The interest in B2B networks and trade credit from hedge funds and others comes at a time when it is so hard to make money in the public market because interest rates are so low.

If interest rates rise the interest in funding platforms may fall. Why? The risk of rates rising provides a bigger pool of alternative investments. Today, that pool is limited by record-low interest rates, hence the interest in trade receivables as a short term fixed income product. Higher interest rates are one of the biggest threats to the economy.

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