Deal Idea: PFM Acquisition of Billeo

There are scores of start-ups in the emerging financial technology space, many of which provide substantially overlapping services, and all of which are, at some level, free. As we move through the current crisis on Wall Street into whatever awaits on the other side one thing is clear: start-ups will need to spend their equity capital wisely, as there may not be debt financing for some time to come. Given that the monetization of these start-ups has not yet fully taken hold, it will become increasingly difficult to survive.

We believe that a wave of consolidation could take place as those start-ups which have reasonably sound monetization models in place seek to expand their user base, and those which may be cash strapped but have a viable, innovative product seek to be acquired before failing.

One particular transaction looks increasingly attractive in the online personal financial management space. Personal financial managers (PFMs) such as Mint, Wesabe, Rudder, and Geezeo all offer the ability to track and manage personal finances from a single point. The aggregation of personal financial data is highly attractive for consumers, particularly in these economically volatile times, but as of yet there is no service which provides an integrated transaction capability. We believe there is substantial value not only in enabling consumers to manage their finances, but also conduct their financial affairs from a single environment.

We believe Billeo presents an attractive acquisition candidate for PFMs. Billeo provides users with the ability to shop and pay bills at company websites using payment and contact information stored in an online e-wallet. Users can also store, track, and search their receipts and payment confirmations. Billeo would enable an acquirer to strategically differentiate itself in what is becoming an increasingly crowded space.

From a usage perspective, a Billeo acquisition would offer a distinct competitive advantage for Wesabe, Geezeo, and Rudder, as Mint is clearly the frontrunner in terms of unique monthly users, which we may assume translates into higher user conversion numbers. Mint, however, boasts a high valuation ($46.3 million post money in Q1 of this year), and may be better positioned for an equity-based transaction.