It’s not news that times have changed in the world of fintech. After financial technology startups saw their fortunes soar during the venture capital boom that came to a loose end as 2021 drew to a close, they are now suffering a slump of similar magnitude.
The damage is not one-dimensional. Instead, the pain surrounding the fintech sphere is varied and multifactorial. Today I want to run through some key data points that are running through my mind. These include the latest from Coinbase and Klarna, where neobanks find themselves in the current valuation climate, and what the changing market means for venture capital dollars that have poured into the industry globally during the last few years of intoxicating private market investment.
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The gist, as you can see from the above, is that fintech was the hottest last year, a fact that can now turn into a venture capital and startup headache.
Marketingwithanoy reported earlier this year, citing data from CB Insights, that as global venture capital funding rose to $621 billion in 2021, from a relatively modest $294 billion in 2020, fintech investment itself soared to $131.5 billion. 4,969 deals, up from $49 billion invested in 3,491 offers in 2020.
So the money at stake here is in the hundreds of billions in terms of capital invested, and probably trillions if we look at the value of startups that raised in good times. (Remember, Crunchbase estimates the total value of all global unicorns at $4.6 trillion, although that number probably includes some zombie valuations that are no longer relevant in a more conservative investment market.)
Refreshed on the capital that went to fintech, let’s take a look at the less attractive news blowing from the high seas of startups building financial technology.
What is fintech revenue worth?
As software valuations soared during the 2020-2021 venture capital boom, every company wanted to be at least a technology company and a software company at best. That’s because the value of software revenue, measured per dollar, has risen sharply. Every dollar of software revenue that a company could claim could bring in as much as $30 or $50 or even $100.
So people worked to build software revenue or change their other revenue as such. This is a problem for many fintech companies, as it has recently been noted that a large part of their income no softwarebut instead something else that software facilitated† However, the two substances are not the same.