Alpaca raises $50M to rapidly scale its API-delivered equities trading business

Alpaca said this morning that it has closed a massive $50 million Series B round of capital. TechCrunch previously covered the company’s late-2019 $6 million seed round¬†and its late-2020 $10 million Series A.

Alpaca offers equities trading software via API. The company initially allowed firms to plug into its technology, powering the trading capabilities of investing groups. More recently, Alpaca has begun allowing other fintech companies to offer equities trading through its service to their consumer user bases, work that fits under the larger embedded finance trend.

Tribe Capital led the company’s Series B, which saw participation from existing investors Spark Capital, Portage Ventures and Social Leverage. New investors including Horizons Ventures also put funds into the round.

Alpaca is an interesting startup. During the savings-and-trading boom of 2020, we used the company’s trading volume growth as a proxy not only for the growth of API-delivered software startups, but also as a window into interest in buying and selling U.S. equities more broadly.

By now offering its trading services to fintechs with consumer end users — the B2B2C model, if you will — Alpaca has expanded its market remit. Per the startup, the number of brokerage accounts it supports has risen some 1,500% this year to more than 100,000. The startup’s CEO, Yoshi Yokokawa, told TechCrunch that it expects to secure 100 partners for its equities trading tech by the end of 2021. That figure was zero at the end of 2020, before its embedded finance product was released.

For Alpaca, working with more fintech companies opens up new revenue streams. The company will continue to generate payment for order flow incomes (PFOF), it said, but by supporting international customers, it can also earn incomes from foreign exchange fees and more.

Notably, Alpaca intends to make its service an anti-cost center by sharing PFOF revenues with partners that embed its fintech APIs. Yokokawa declined to share the PFOF split with customers, but our guess is that something around 15% to 25% makes sense, providing incentives to potential partners to choose Alpaca over rival tech while keeping enough top line on the Alpaca side of the ledger to continue building a venture-scale business.

The startup has big plans: It is moving into the cryptocurrency market, it announced this morning, and partnering with Plaid to make money transfer easier for investors. Recent results from Robinhood, a consumer trading platform popular in the United States, helped underscore just how lucrative crypto trading can be for platforms.

Why raise $50 million? TechCrunch was curious why the company would put so much capital onto its books in a single shot instead of raising a more modest round of, say, $25 million, still a healthy figure for a Series B and one closer in size to its preceding Series A.

Yokokawa said Alpaca has a lot of stuff to build. And to build it all is going to take a lot of folks. Alpaca had just 10 employees when COVID-19 hit, which means that the company has a lot of hiring in front of it. And the sorts of developers it needs, we suppose, aren’t going to come cheap.

Still, big rounds mean big expectations, from both investors and the observer team (that’s us) as well. We’ll check back with the company in a few months to see if it is on track to reach its partner goal for 2021.