FinTechs that go public used to seem like they had unlimited funding if investors saw potential. That mindset could be a thing of the past.
If only FinTechs could turn back the clock a few years, when global venture capital (VC) investment was through the roof and much of that freeflow went to FinTech startups, leading to sky-high valuations. The hard landing began last year as 2022 ushered in rising inflation, leading to heightened market volatility and broader economic uncertainty. In response, VC firms became less adventurous and began considering FinTechs’ profitability along with growth potential — something that even those considered successful, like Klarna, continue to struggle with.
As PYMNTS’ new collaboration with Sezzle, the “FinTech Tracker®”, shows, as VC FinTech funding began to dry up, ratings also started to dry up.
PYMNTS’ FinTech US IPO Index, which tracks the percentage returns of FinTechs since IPO, clearly shows the recent difficult performance of FinTechs. The initial public offering (IPO) index fell 51% over the course of 2022, which roughly compares to the Global X FinTech ETF’s 52% decline as IPO funding fell 68% over the same period. Now, with the SVB crisis and general banks’ jitters turning more risk-averse in the wake, it can now become even harder for FinTechs to get funding.
Evidence of investors’ concerns after the SVB is already taking shape, as fintechs that have been going public since 2020 are now trading at 54% below the asking price. Credit platforms have been a particular driver of this latest defeat, sending the IPO index down nearly 5% in March. However, FinTechs, which are focused on other ailing sectors, are also finding themselves in trouble, as mortgage brokerage platform Blend said its shares have fallen 40% over the past five sessions.
FinTechs that go public are subject to the regulatory requirements of an IPO, which include SEC scrutiny, disclosure, and financial audit, and must now reassess their winning strategies to appeal to the post-SVB investor. Current revenue is prioritized over potential growth, and as such FinTechs looking for further funding may need to move to a more stable, sustainable model. This could be more difficult than in previous years as inflation and persistently higher Fed rates put additional pressure on fintech profitability.
There is no single answer as to how FinTechs can reach the milestone of going from red to black. Businesses should significantly cut excessive costs and expenses, including potentially painful rounds of layoffs, as well as cutbacks.
However, the sad reality is that not all FinTechs may survive the already tumultuous year of 2023. However, those who do could come through stronger than ever as this year continues to test everyone’s resilience.
Get our hottest stories delivered to your inbox.
Sign up for the PYMNTS.com newsletter for updates on top stories and viral hits.
Comments are closed.