n The continuing increase of fintech startup investment in Silicon Valley
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A comparison of the world’s leading fintech hubs: San Francisco

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Rezaul Karim

Part two of this series by executive search firm 360Leaders, highlights the rise of fintech within San Francisco.

Silicon Valley has, since the 1950s, been the driving force for America’s dominance over the technology industry.

It was here that America’s first transistor companies called home, and President Eisenhower turned to the region to help build a response to the Soviet Union’s launch of Sputnik into low-earth orbit.

Today the Valley as its collectively known, contains a third of all venture capital invested in the United States and houses the headquarters of 39 businesses in the Fortune 1000.

So it’s no surprise to hear people like JP Morgan’s CEO Jamie Dimon say, “Silicon Valley is coming” in reference to the region’s forays into FinTech and the increase in FinTech startup investment.

Google, Apple and Salesforce, all Silicon Valley residents, have made significant investments into FinTech, bolstering both the talent pool for other companies in the space, along with fresh FinTech startup investment.

Silicon Valley has a FinTech talent pool of 74,000 people, compared with 61,000 in the UK, and attracted £3.6bn in investment, compared with Britain’s £524m.

Big Fintech Startup Investment

Thanks to the Valley’s already established position as an investment hub – it has more than 17,000 Angel Investors – it’s potential for new FinTech startup investments is enormous.

500 Startups, Andreessen Horowitz, Sequoia Capital, Google Ventures, SV Angel, Ribbet Capital, DFJ, Accel Partners, and Khosla Ventures all have a track record investing in FinTech startups.

Andreessen Horowitz already has several investments in financial technology ventures including 21, Affirm, Boku, Coinbase, Dwolla and TransferWise. Their businesses range from Bitcoin mining to alternative lending to online money transfers.

Success Stories

The biggest FinTech unicorn to come out of the Valley so far has been Stripe, which lets merchants process credit cards directly from their own desktop and mobile platforms, by way of a few lines of code. It has raised more than $300 million from investors to date.

It powers mobile payments for everyone from Apple Pay, Kickstarter, Twitter and even donations to Presidential campaigns.

Credit Karma offers free access to credit reports and scores, personalized financial recommendations and educational resources and has raised more than $175 million at a $3.5 billion valuation.

SoFi, or Social Finance started in 2011 by helping students secure alternative funding for their education. Since then it’s branched out into mortgages, wealth management and insurance, and has, as of October 2016, funded more than $16 billion in total loan volume and has 243,000 members.

Areas of expertise

Silicon Valley FinTech covers a broad range of financial products and services, but has particular strength in the lending spheres.

SoFi is leading the charge in this space, but smaller startups such as WeFinance which enables borrowers with safe, simple debts to refinance them at reduced interest rates by borrowing directly from real people.

Another company, Upstart which uses sophisticated algorithms based on academic performance, areas of study and other unique measures to establish someone’s creditworthiness has started to garner attention.

Payments is another sector Silicon Valley has a strong pedigree in. Stripe has proven there’s fertile ground between people’s bank accounts and the internet, whereas companies like Token provide a suite of product software products that allow banks, software developers, businesses, and consumers to issue a new payment type designed specifically to make instant, secure transactions without friction.

Since its launch in 2013, it has created a sales lead pipeline of some $50 billion and has recently opened its first office in London.

Challenges

Like many other hubs on this list, Silicon Valley is hampered by extremely high costs, especially around office space, living and cost of acquiring new talent.

Silicon Valley home prices have risen astronomically in the past decade. The median sale price for a home in Silicon Valley is $1.05 million — for comparison, it’s $565,000 in Seattle and $375,000 in Portland, according to real-estate brokerage Redfin’s analysis.

Research carried out by compensation data company PayScale.com, Silicon Valley engineers earn nearly 50 percent more than their Boston counterparts, which has led to a bottleneck for new startups attempting to attract the best talent.

The future

With the living costs expected to continue to rise in Silicon Valley, as well as wages, many are worried it’ll throttle the FinTech market and push investment elsewhere.

But analysts at Deloitte predict that increased activity in FinTech by the likes of Google, Apple, Facebook and Amazon, who are able to ride rises in costs and provide investment into its own projects, will drive the region’s FinTech position forward.

And if history is any indicator, Silicon Valley’s ability to ride out financial and cultural shifts and still stay at the center of innovation in America, it’s going to be just fine.