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Oversupply applies as private equity. I have not seen much commentary on
this in the payments industry, but this is an important
to fintech startups topic, so let's explore it in more detail.

How venture capital works
The model for a venture capitalist is to invest in a fledgling
company. It could be a startup or it could be an early-stage
company. A venture capitalist (VC) firm is in theory, going
to lend its expertise in managing the company, but more
importantly, it is also going to take a hefty management
fee every year, so whether the investment ultimately fails
or succeeds, the VC will get its management fees. If it
has invested only other people's money, it will come out
unscathed.

One thing is certain: at some point, three to five years
down the road, certainly no longer than 10 years, the VC
is going to have to sell its shares and return money to the
investors. But the VC cannot get its money out until one of
two things happens: the firm that it has backed enters the
public market, or it is acquired. Neither is inevitable in all
cases.

By Brandes Elitch Harvard Business School professor Tom Nicholas recently
CrossCheck Inc. published a book called V.C., An American History. He
found that VCs make predominantly bad bets – about 80
rossCheck is located in Sonoma County, percent don't pay off. Traditionally, to achieve a 20 percent
California, also known as Wine Country. And return, those two in 10 winning bets must generate
2019 was a nearly ideal growing season for between 20 and 30 times the money invested in them (the
C grape growers here: just the right amount of power of compound interest).
heat early in the growing season to acclimate the grapes,
a late summer with late rains, followed by warm days Success is a 12 percent return per year, and a 10-year fund
through September. This led to long hang times and even needs to return three times the fund size. And then there
ripening. These wines should be outstanding. There is just is the Pareto Rule: 80 percent of the returns come from
one problem, but it is a big one: oversupply of premium 20 percent of the startups. A realistic rule is that out of
wine. a portfolio of 10 firms, five will be complete losers, three
will sell for small to medium amounts, and one or two will
Silicon Valley Bank just issued a 71 page report called State be wildly successful. All of this should be pretty sobering
of the Wine Industry. The author, Rob McMillan, stated, to startups in the payment space that are looking for VC
"Today, the supply chain is stuffed. The oversupply, capital.
coupled with eroding consumer demand, can only lead
to discounting of finished wine, bulk wine, and grapes. This is not to disparage VCs. There is another side to this.
You'd have to go back to the 2000–2001 era to see the kind "A thriving society needs moon shots, and in the absence
of things that we're going to have to do to clear up the of a literal space race, only venture capitalists have the
supply chain. You'll see wines destined for $35-$55 bottles mandate to throw cash at an improbable success," Nichols
sold as a private label or in a Costco Kirkland box, but wrote. "Venture capital has offered a path into the market
instead of more generic Sonoma cab or pinot, it will be for unsmooth operators and bizarre ideas."
more specific Russian River Valley pinot. If there's a silver Fintech facts
lining, if we're going to provide great values at lower price
points, that might help drive some future sales to a more Now lets's have a brief overview of fintech, some of which
interested young consumer." have a business-to-business model, and others have a
business-to-consumer model.
Furthermore, consumer habits have changed: last year
Americans' wine consumption dropped for the first time • Fintech startups by region show the Americas
in 25 years. leading with 5,779 startups, about 35 percent of the
world's market share (Statista)
Do we have a similar situation in the fintech or payments
industries? Well, fintech is not so much about a financial • In the United States, the biggest fintech segment is
services business as it is about venture capital, also known digital payments, valued at $1.2 trillion (Statista)
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