Alpaca Rises $50M to Rapidly Scale its API-Delivered Equities Trading Business

Alpaca announced this morning that it had completed a $50 million Series B round of funding. TechCrunch previously covered the company’s $6 million seed round in late 2019 and its $10 million Series A in late 2020.

Alpaca provides API access to stocks trading applications. Initially, the company allowed companies to hook into its technology, allowing them to use it to fuel their trading operations. Alpaca has lately begun allowing other fintech companies to offer stock trading to their consumer user bases through its service, work that falls within the larger embedded finance trend.

Existing investors Spark Capital, Portage Ventures, and Social Leverage also participated in the company’s Series B, which was led by Tribe Capital. Horizons Ventures, a new investor, also contributed to the round.

Alpaca is a fascinating company. We utilized the company’s trading volume increase as a proxy not only for the rise of API-delivered software businesses but also as a window into an interest in buying and selling U.S. equities more generally during the savings-and-trading boom of 2020.

The company will continue to produce payment for order flow incomes (PFOF), but by assisting international consumers, it will be able to make income from foreign currency fees and other sources, according to the company.

Alpaca, for example, plans to turn its service into an anti-cost center by sharing PFOF income with partners who use its financial APIs. Yokokawa declined to share the PFOF split with customers, but we believe something in the range of 15% to 25% makes sense, giving potential partners a reason to choose Alpaca over competing for technology while keeping enough top line on the Alpaca side of the ledger to continue growing a venture-scale business.

The company has enormous ambitions: It announced this morning that it is entering the cryptocurrency business and teaming with Plaid to make money transfers easier for investors. Recent findings from Robinhood, a prominent consumer trading platform in the United States, demonstrated how profitable cryptocurrency trading can be for platforms. Why is it necessary to raise $50 million? TechCrunch was perplexed as to why the firm would raise so much money in one go rather than raising a more modest round of, say, $25 million, which would still be a strong sum for a Series B and closer in size to its prior Series A.