Fintech Quiz 1 || with 100% Verified Solutions.
Start-ups need to grow rapidly correct answers Network effects (conventional and data) and scale
economies/first mover advantage
Financing framework correct answers small businesses: low capital requirement, low novelty
Capital intensive, proven-tech: high capital requirement, low novelty
Capital intensive new tech: high capital, high novelty
New technologies: low capital, high novelty
Search frictions correct answers little public info available about start-up-- sourcing: where to find deal?
info asymmetry correct answers entrepreneur knows more than investor. Diligence and monitoring
Investors balance 3 goals correct answers 1. diversification across investments 2. scale in each investment
3. management/transaction costs (so that it's worth it)
Repeal of Glass-Steagall Act correct answers allows commercial banks to merge with security institutions
Disintermediation correct answers P2P insurance, reducing costs, empowering the consumer
4 views of the current fintech bubble correct answers 1. all hype
2. wall street -> palo alto, no more banks
3. big banks acquire fintech startups
4. blockchain decentralizes financial services-> power to the people
front-end start-up approach to banking correct answers Consumer, commercial internet-only. Digital challenger banks: much lower requirements to get a banking license. Cost of acquiring customers high in the US
back-end startup approach to banking correct answers access and authorization to bank accounts on apps/sites. Venmo: gathering data on how you're spending
Subsector of fintech: insurance correct answers Insurance: Oscar, Lemonade. Life insurance. Tracktable: AI technology to underwrite
Subsector of fintech: Institutional investment/research correct answers AI driven hedge funds Social platforms: follow investor's deals
Data/analytics: hedge funds use this to outsource quant. For ex: Dataminr
Trade finance platforms: some crypto based Subsector of fintech: Lending correct answers Small loans unprofitable for big banks (esp under $50k). 2 types of online lenders: 1. marketplace-- peer to peer
2. balance sheet-- own capital or drawing a credit line from corporations (usually in Utah because licensing requirement is lower)
Subsector of fintech: blockchain correct answers "Trust machine"
No central intermediary (e.g. bank/broker)
Once digital asset is transferred, it's irreversible
Promises: new asset class/decentralized currency, payment/store of value solution
Crowdfunding drivers correct answers 1. Fewer/later IPO's: lots of private capital, so wait to go public
2. larger early stage rounds
3. lower costs of launching start-ups
4. New regulation (JOBS act): Before, the Securities Act of 1933 prohibited soliciting without SEC registration
Now: can publicly advertise share issue/investment with "Form D" exception (sell securities without registering)
Need 3 things for crowds to guess right correct answers 1. independence
2. diversity of opinion
3. aggregation
"Mini-IPO" (JOBS Act) correct answers can have IPO of up to $50mil w/o SEC registration
Legal and marketing fees make it not worth it
Title II (of the JOBS Act) correct answers Public solicitation is okay, but only with accretted investors
>incomes of $200k for three years or net worth of >$1million
Must file "Form D" before soliciting
Essentially allows angel investing online (most widely used part of JOBS Act)
Title III (of the JOBS Act) correct answers "Retail" crowdfunding
1. can raise up to $1 million every year
2. must use SEC-registered platform (online intermediary)
3. Must be US company
4. must disclose some financial info & report regularly
5. anyone can invest up to $10k or 10% of income
Syndicated deals allow: correct answers 1. diversification
2. signal of quality
3. solution to info asymmetry (trust mechanism)-- lead investor's incentives aligned with backers
b/c of carry and skin in the game
Start-ups need to grow rapidly correct answers Network effects (conventional and data) and scale
economies/first mover advantage
Financing framework correct answers small businesses: low capital requirement, low novelty
Capital intensive, proven-tech: high capital requirement, low novelty
Capital intensive new tech: high capital, high novelty
New technologies: low capital, high novelty
Search frictions correct answers little public info available about start-up-- sourcing: where to find deal?
info asymmetry correct answers entrepreneur knows more than investor. Diligence and monitoring
Investors balance 3 goals correct answers 1. diversification across investments 2. scale in each investment
3. management/transaction costs (so that it's worth it)
Repeal of Glass-Steagall Act correct answers allows commercial banks to merge with security institutions
Disintermediation correct answers P2P insurance, reducing costs, empowering the consumer
4 views of the current fintech bubble correct answers 1. all hype
2. wall street -> palo alto, no more banks
3. big banks acquire fintech startups
4. blockchain decentralizes financial services-> power to the people
front-end start-up approach to banking correct answers Consumer, commercial internet-only. Digital challenger banks: much lower requirements to get a banking license. Cost of acquiring customers high in the US
back-end startup approach to banking correct answers access and authorization to bank accounts on apps/sites. Venmo: gathering data on how you're spending
Subsector of fintech: insurance correct answers Insurance: Oscar, Lemonade. Life insurance. Tracktable: AI technology to underwrite
Subsector of fintech: Institutional investment/research correct answers AI driven hedge funds Social platforms: follow investor's deals
Data/analytics: hedge funds use this to outsource quant. For ex: Dataminr
Trade finance platforms: some crypto based Subsector of fintech: Lending correct answers Small loans unprofitable for big banks (esp under $50k). 2 types of online lenders: 1. marketplace-- peer to peer
2. balance sheet-- own capital or drawing a credit line from corporations (usually in Utah because licensing requirement is lower)
Subsector of fintech: blockchain correct answers "Trust machine"
No central intermediary (e.g. bank/broker)
Once digital asset is transferred, it's irreversible
Promises: new asset class/decentralized currency, payment/store of value solution
Crowdfunding drivers correct answers 1. Fewer/later IPO's: lots of private capital, so wait to go public
2. larger early stage rounds
3. lower costs of launching start-ups
4. New regulation (JOBS act): Before, the Securities Act of 1933 prohibited soliciting without SEC registration
Now: can publicly advertise share issue/investment with "Form D" exception (sell securities without registering)
Need 3 things for crowds to guess right correct answers 1. independence
2. diversity of opinion
3. aggregation
"Mini-IPO" (JOBS Act) correct answers can have IPO of up to $50mil w/o SEC registration
Legal and marketing fees make it not worth it
Title II (of the JOBS Act) correct answers Public solicitation is okay, but only with accretted investors
>incomes of $200k for three years or net worth of >$1million
Must file "Form D" before soliciting
Essentially allows angel investing online (most widely used part of JOBS Act)
Title III (of the JOBS Act) correct answers "Retail" crowdfunding
1. can raise up to $1 million every year
2. must use SEC-registered platform (online intermediary)
3. Must be US company
4. must disclose some financial info & report regularly
5. anyone can invest up to $10k or 10% of income
Syndicated deals allow: correct answers 1. diversification
2. signal of quality
3. solution to info asymmetry (trust mechanism)-- lead investor's incentives aligned with backers
b/c of carry and skin in the game
