It’s time again for my annual roundup of applications to our incubator, and the trends revealed by our application pool. With over 100 applications from around the world, almost all early stage, our pool provides a good picture of what entrepreneurs are working on and what will be coming to market in the next 12-18 months. We focus mostly on fintech, or at least the parts of fintech that can leverage Yodlee’s platform of consumer and small business financial data. Flash briefing: there was some consistency year over year, one dramatic change that we’ve been expecting, the continuation of some trends from last year, and two emergent trends, one in distribution channel and the other in data services.
At the highest level, we had more applications than ever, showing that in fintech the entrepreneurial spirit remains strong. Our percentage of non-United States applications increased slightly, to nearly 40%, so that spirit is clearly global. The biggest sources of non-US applications were India, England and Australia. Ranging farther afield, we also had our first-ever applications from the Czech Republic, Kenya and Russia. Digging a little deeper, although still looking across the entire pool, the mix of business-facing vs. consumer-facing applications changed significantly. We saw B2B increase from 39% of applications last year to 55% this year. One year is certainly not enough to establish a trend, but I wonder if entrepreneurs are starting to get hip to the fact that consumer-facing fintech is hard.
Looking at particular sectors, the biggest change is that applications targeting personal financial management went down dramatically. Last year, fully 46% of applications were PFM-related, and this year that decreased to 29%. Perhaps entrepreneurs have been scared off by a landscape littered with failed PFMs. Or maybe they took heed to my words in this essay last year: “if you have a PFM idea, we have seen dozens and dozens and dozens of these, so the innovation bar is set extremely high.” Probably related to the drop in PFMs was a drop in the applications targeting millennials, from 12% down to 4%. Since most millennial-targeting applications are, in fact, PFMs, those declines should go hand in hand, or perhaps avocado toast in hand.
Continued Growth in AI, Real Estate Tech
A trend that we saw last year and that continues unabated is the use of AI or machine learning. Applications from companies leveraging those technologies climbed from 12% last year to 22% this year. Some of these were truly AI-centric, such as voice or chat agents, but most simply used AI on their path to some other functionality, like expense categorization, insurance issuance or asset management. In other words, AI has already become just another tool for startups to put into their stack. Lending and payments applications stayed flat, almost freakishly so. Each was 12% of our applicant pool both last year and this year. Applications targeting the non-profit sector doubled, but that was from a very small base. I should note that one of those applications was accepted to our class, so we are clearly bullish on this sector as a place for fintech. Real estate tech emerged as a trend in last year’s applicant pool and it remains a fertile category, growing slightly from 6% to 7% of the applicant pool. This category punched above its weight, however, in both innovation – there were some really original ideas – and in admission to our class, which is fully 25% real estate.
In terms of new trends, we saw several companies (6% of our pool) using employee benefits or employee assistance programs as a channel to reach consumers. This channel has been poking along since we started the incubator, and we’ve been paying attention to companies using it, but this is the first year we had a critical mass of applications using it. We are eager to see if the potential – a great way to reach a lot of users quickly – outweighs the B2B sell cycle risks. An emerging product trend we saw was companies working to provide small businesses with the benefits of big data. This is a vague description, and these companies were in a variety of categories, but the common theme was offering services that would enable smaller companies to leverage the benefits of data in the same way that large companies do. Tools to help smaller hedge funds compete with the fleets of data scientists at big funds. Services providing data-driven market research to SMBs. Sophisticated portfolio management for amateur investors. A variety of businesses, but all are using software to drive down the cost of data analysis and thus make it accessible to everyone. In summary, we saw continued growth in AI and real estate tech, and a big rotation out of PFMs and into B2B concepts. From the Incubator’s perspective, if entrepreneurs are moving out of PFMs and into other projects, that is a good thing. The market needs more variety and innovation, and fewer tools trying to solve the same budget and savings problems in only marginally different ways. Non-profits, real estate, big data – there are plenty of new challenges that entrepreneurs can address, and we stand ready to support them in those efforts.