Alpaca announced this morning that it had closed a $50 million Series B capital round. TechCrunch has previously covered Alpaca's $6 million seed round in late 2019 and its $10 million Series B round in late 2020.
Alpaca provides API access to its equities trading software. Initially, the company allowed companies to connect to its technology and power the trading capabilities for investing groups. Alpaca recently allowed other fintech companies to offer equity trading via its service to their consumer users. This is work that falls under the larger embedded finance trend.
Tribe Capital was the lead investor in the company's Series B. Existing investors Spark Capital and Portage Ventures participated. Horizons Ventures was one of the new investors that contributed funds to the round.
Alpaca is a fascinating startup. We used the company's trading volume growth during the savings-and–trading boom in 2020 as a proxy for the growth API-delivered startup software companies and also as a window into the interest in U.S. equities.
Alpaca now offers its trading services to fintechs and consumer end users under the B2B2C model. This is Alpaca's way of expanding its market reach. According to the startup, it has supported more than 100,000 brokerage accounts this year, an increase of 1,500%. Yoshi Yokokawa (the startup's CEO) stated that 100 partners are expected to be secured for its equities trading technology by 2021. This number was zero at the end 2020, just before its embedded finance product was launched.
Alpaca is excited to work with more fintech companies. This opens up new revenue streams. It said that the company will continue to earn payment for order flow incomes, or PFOF, but it could also make incomes by supporting international clients, such as foreign exchange fees.
Alpaca plans to make its service an Anti-Cost Center by sharing PFOF revenue with partners who embed its fintech APIs. Yokokawa refused to disclose the PFOF split to customers. However, we believe that somewhere between 15% and 25% would make sense. This would provide incentives for potential partners to choose Alpaca over other tech, while also keeping enough top-line on the Alpaca side to continue building a venture scale business.
The startup has big plans. It announced today that it is entering the cryptocurrency market and partnering up with Plaid to make money transfers easier for investors. Robinhood, an American consumer trading platform, recently revealed how profitable crypto trading can be.
Why raise $50 million? TechCrunch was intrigued to see why the company raised $50 million in one round instead of raising $25 million in a smaller round. This is still a healthy amount for a Series B, and a lot more than its previous Series A.
Yokokawa stated that Alpacas have a lot to do. It will take many people to build it all. Alpaca only had 10 employees at COVID-19, so the company still has plenty of work ahead of it. We also suspect that the developers it will need are not going to be cheap.
Big rounds can still be a sign of big expectations from investors as well as the observers (that's us). Check back with the company every few months to find out if it has reached its goal of becoming a partner in 2021.
