Venture Capital Firms Discover That Finance Startups Can Make Good Investments

Venture Capital Firms Discover That Finance Startups Can Make Good Investments - Industry News - Portfolio.com
While the entrepreneurial part of the financial-services industry hasn’t generated as many home runs for venture backers as, say, technology, there have been and remain opportunities for payoffs. PayPal, for instance, generated big returns for its investors when eBay bought it for $1.5 billion in late 2002. Now, many venture investors are looking for big payoffs on another kind of payment system, prepaid debit cards such as those issued by Green Dot Corp. and NetSpend Corp. (which have won funding from premier venture firms Sequoia Capital, in the case of Green Dot, and Oak Investment Partners, in the case of NetSpend). Netspend went public last month at a price of $11 a share and closed Thursday at $15.23 a share; Green Dot’s IPO in July was a success, with the stock closing Thursday at $53.12 a share, up from the $36 IPO price.

Rosen sees these transactions reflecting one of four big trends in financial-services startups post-crisis: the effort by consumers to manage their financial lives. While prepaid debit cards like those offered by Green Dot and Netspend are typically pitched to the under-banked (those who rely on check-cashing outlets rather than banks), they are also being used by customers who want to take control of their spending habits and try to avoid depleting their bank accounts or running up hefty credit-card bills.