Debunking The Most Common Misconceptions We Deal With On A Daily Basis

"Credit businesses do not create equity value"

A common misconception in fintech investing is that credit-led businesses fail to generate significant equity value. However, data from Senteo as of December 2023 tells a different story. Since 2018, credit-led fintechs have driven $136 billion in exit value and represent a substantial 51% of projected 2024 profits among public fintechs from the same period. While these businesses may not command SaaS-level price-to-earnings (P/E) multiples, their ability to scale and generate stable cash flows generates substantial economic outcomes. Great examples of these outcomes include: 

• Nubank (Brazil): A leading digital lender, Nubank had one of the most significant fintech IPOs in 2021, achieving a peak valuation of $52 billion. 
• Tinkoff Bank (Russia): Rebranded as T-Bank, it went public in 2022 with a $17 billion valuation, becoming one of Russia’s premier online banking successes.
• Kaspi (Kazakhstan): Another leading digital lender, Kaspi went public in 2024 at a valuation of $17.5 billion, highlighting Central Asia’s growing fintech footprint.
• Affirm (US): A BNPL pioneer, Affirm went public in January 2021 with a valuation of $24 billion, showcasing the global appeal of innovative credit models.

These examples demonstrate the advantage of credit-led fintechs in markets underserved by traditional banks and prove that the creation of equity value is well within their reach.

Thanks to Rex Salisbury for banging the drum here on LinkedIn.

“Credit is too capital intensive”

Yes, credit-led fintechs are capital-intensive. But the landscape is evolving. Credit is cheaper and more accessible than ever, and credit products demonstrate remarkable cash flow dynamics with characteristics similar to SaaS business models. 

Global private credit has reached $1.6 trillion, representing approximately 12% of the alternative investment universe. Asset backed credit makes up only 5% of this with strong growth potential that continues to attract investor attention. The expanding depth of private credit markets is lowering capital costs, reducing historical barriers associated with credit intensity, allowing lenders to achieve significant scale by accessing capital at competitive rates and deploying it more efficiently.

The most compelling aspect of credit businesses is their ability to generate consistent revenue through repeat payments and long-term customer relationships. Borrowers make regular repayments across amortising loans, creating opportunities for cross-selling and upselling.

"Emerging Markets Do Not Have Exits"

Contrary to widespread skepticism, emerging markets are producing remarkable technological exits. Since 2018, these markets have contributed $133 billion in fintech exits, representing 30% of global exit value. This achievement is particularly impressive given that these markets receive less than 20% of global funding volume. Landmark exits include those listed above and more like: 

• StoneCo (Brazil): A payment processor that raised $1.2 billion during its 2018 IPO, becoming a Latin American fintech leader.
• Coupang (South Korea): Raised $4.6 billion in its 2021 IPO, achieving a valuation of $84 billion—one of Asia’s largest exits.
• Grab (Southeast Asia): Merged with Altimeter Growth Corp in a 2021 SPAC deal valued at $40 billion.
• Careem (UAE): Acquired by Uber for $3.1 billion in 2019, marking a transformative deal in the Middle East’s tech ecosystem.
• Paystack (Nigeria): Acquired by Stripe for over $200 million in 2020, exemplifying Africa’s fintech potential.

"Emerging Markets Lack Talent and Founder Depth"

The narrative of emerging markets lacking talent is rapidly being dismantled as entrepreneurial ecosystems mature and founder networks expand. The concept of the "founder mafia" - originally pioneered by the PayPal Mafia in the United States - is now taking root in emerging markets.

In Europe, Revolut has already demonstrated this phenomenon, with over 102 startups led by its alumni raising $2.2 billion. At Tomorrow Capital, we have seen more than 10 startups founded by ex-Nubank employees securing significant funding in Latin America. 

Globalisation is bridging talent gaps, with entrepreneurs creating cross-border opportunities that challenge traditional market boundaries. Examples of cross-border talent flows include Chinese entrepreneurs launching ventures like Stori, which achieved a $1.2 billion valuation in Mexico. Former Tinkoff executives are now leading a $55 million-funded digital bank in the Philippines. While developed markets debate the effects of de-globalisation, emerging markets are seizing opportunities to attract world-class talent and drive innovation.

While not all EM's are created equal, regionally talent is flocking to key innovation and economic centres such as Brazil, Mexico, Saudi and Indonesia.

Conclusion

Credit businesses create immense equity value, emerging markets can produce significant exits, and regional founder ecosystems are thriving. We are witnessing a global shift where previously overlooked regions demonstrate remarkable resilience, innovation, and scalability on the world stage.

At Tomorrow Capital we are positioned at the intersection of this continued surplus demand for credit from consumers & SME’s, the burgeoning talent pools seeking to address the problem and institutions looking to extract return from this opportunity. Through our specialist approach, we identify high-potential fintech lenders, support their growth, and enable the development of sustainable, reliable lending models that deliver long-term returns.