It is childish to believe in Unicorns and entrepreneurs have to be childish – meaning they have to believe they can beat the odds. Thank goodness for that, for the odds are stacked against startups succeeding and yet some do succeed spectacularly, benefitting everybody.

Image courtesy of Little Unicorn Day Nurseries in Canary Wharf (spotted on route to Fintech Forum London).

The Fintech bubble story is circulating. Two facts appear to point to an early stage bubble:

• There is a massive explosion of startups. Try keeping on top of the number of new ones knocking on the doors of angels networks, accelerators and crowdfunding sites.

• Most will fail. That is not being negative. It is just a statistical fact. Always has been true and is still true today.

At this point, gloomy old Eyore lumbers off muttering about bubbles and how it will all end badly. Bankers go “phew, I am pleased that is all over”. That is wrong for two reasons:

• The cost to build the Minimum Viable Product (MVP) at all these startups together is probably less than the money spent on legacy system maintenance at just one big bank.CB Insights has the data:”What took $5 million in 2000 is now . . . in 2011, was $5,000″. Not 10x or even 100x, that is a 1,000x reduction in costs! Only to get to MVP. Getting to market and scaling is still expensive.

• Now that more than 50% of the 7 billion people on this planet have mobile phones, the speed with which ventures take off once they get to Product Market Fit (PMF) can be staggering. Having a cheap option on all those MVP startups seems sensible thanks to the one that makes it.

• Even ventures that fail to get Product Market Fit, can be aquire-hired and founders get paychecks and the experience to try another time.

Maybe there is a bubble in late stage, evidenced by mega large rounds? It is true that investors are ready to pay massive premiums to get the one winner that emerges from a network effects contest. The mantra is that it is better to invest in Facebook at a silly valuation than Myspace at a sensible valuation. It is also true that private markets don’t have the market discipline of shorting, but PE investors are now more cognizant of public market comparables and after the August correction this has had a cooling effect on market valuations.

The bubble talk comes from two sources:

• Investors burned on individual deals. This is the most high risk/high reward game out there and without a lot of smarts, luck and diversification, plenty of investors are getting burned.

• Bankers who hope that this is all a passing phase. Bankers who think this way should study the disruption that hit other industries.

By Bernard Lunn