Now the parent Nubank’s company reported its financial performance for the fourth quarter, and in response to rapid revenue growth and improving economy, the company saw its value fall 9% in regular trading today, after falling sharply in recent sessions. Now worth just $8 a share, Now is under water from its IPO price and about a third lower than its all-time high.
It is hardly alone in its struggle. Fintech valuations have taken quite a beating in recent months, perhaps even more so than the larger software market itself; SaaS and cloud stocks have barely covered themselves in glory lately, but declines in fintech stocks could be the crowning glory when it comes to negative returns lately.
The Exchange explores startups, markets and money.
Read it every morning on Marketingwithanoy+ or get The Exchange’s newsletter every Saturday.
Why do we care? Because fintech is arguably the best-funded startup sector. Marketingwithanoy reported earlier this year that fintech startups raised about a fifth of venture capital dollars last year. A full one in five dollars from a record year of venture capital, we must add.
It’s no exaggeration to say that as fintech goes, so is the start-up market, and thus the venture capital return profile.
So how are we supposed to strike a balance between falling public market valuations for fintech companies and just insane investment in the private market? That is our question for today. Let’s start with a refresher on the results of fintech venture capital, the fintech liquidity crisis and what has happened to fintech stocks to get our heads around the problem, if not the solution.
Unless you own a lot of shares of financial technology startups, this will be fun.
Venture capital loves fintech
The amount of capital offered to financial technology startups is hard to fathom. In 2021, of a total of $621 billion of invested capital in the general private market under the auspices of ventures, about $131.5 billion across 4,969 deals went to fintech startups. That data, from CB Insights, also indicated that dollar volume for the industry grew faster than deal volume. Which, if you run the numbers, allows for a larger deal size over time.
This comes from an industry that raised $49 billion in 3,491 deals in 2020. That’s a gain of 168% in one year.
You know the names: Brex and Ramp and Airbase were raised in 2021, just like Stripe. And FTX and OpenSea. The list is full of major companies that help both consumers and businesses manage, invest and move money.
Chime raised a massive $750 million Series G last August, a deal that pushed its valuation to about $25 billion. Which, of course, do you think makes the company an IPO candidate for 2022, right? Only maybe, as it turns out. Forbes reports that the company’s IPO has been postponed to the end of 2022, perhaps even the fourth quarter. That was before Now it reported strong growth and its first full-year adjusted profitability, getting a tenth of its value decapitated after suffering declines in previous recent trading sessions.
Does Chime want to go to that market? Probably not, with investors slandering one of its best-known global kin.
Why is this bad?
Nearly $400 billion went to fintech startups from early 2018 to late 2021. That’s an amount that’s hard to swallow, but we can better understand it as increasing pressure. The more money that goes into a given industry’s startups, and the longer that money remains illiquid, the more investors anticipate exits — which, of course, means liquidity through things like IPOs.