Nubank, reported its fourth-quarter financial performance and, in response to rapid revenue growth and an improving economy, the company saw its value fall 9% in regular trading after falling sharply in recent sessions. Now valued at just $8 per share, Nubank it is in freefall from its IPO price and about a third below its all-time highs.
You are not alone in this fight. Fintech valuations have taken a hit in recent months, even more so than the software market itself. SaaS and cloud stocks have barely covered themselves in glory recently, but declines in fintech stocks can take the cake when it comes to negative returns of late.
Why do we care? Because fintech may be the best financed startup sector. Fintech startups raised about a fifth of venture capital last year. One in five dollars of a year of all-time record venture capital.
It's no exaggeration to say that as fintech advances, so does the startup market, and thus the profile of venture capital returns.
So how are we going to balance falling public market valuations for fintech companies and private market investment? To understand the problem, if not the solution, start with an update on fintech venture capital results, the fintech liquidity crisis, and what has happened to fintech stocks.
Venture capital is attracted to fintech
The amount of capital given to fintech startups is hard to fathom. In 2021, of a total $621 billion of private equity invested typically under the auspices of venture firms, some $131,5 billion across 4969 deals went to fintech startups. That data also indicated that the volume of investment for the sector was increasing faster than the volume of transactions. Which, if you run the numbers, allows for larger deal sizes over time.
This is from a sector that raised $49 billion in 3491 deals in 2020. That's a 168% profit in a single year.
The protagonists are known: Brex, Ramp and Airbase raised in 2021, as did Stripe. And FTX and OpenSea. The list is packed with great companies that help both consumers and businesses manage, invest, and move money.
Chemistry raised a whopping $750 million Series G in August 2021, a deal that raised its valuation to around $25 billion. Which, in your opinion, naturally makes the company an IPO candidate for 2022, right? Just maybe. Forbes Reports that the company's initial public offering was delayed until the end of 2022, perhaps even the fourth quarter. That was before Nu posted indicated growth and its first adjusted return of the full year and a tenth of its value was decapitated after suffering declines in previous trading sessions.
¿Chemistry want to go public in that market? Probably not, as investors cast doubt on one of their best-known global cognates.
Why is this bad?
Nearly $400 billion has been invested in fintech startups from the beginning of 2018 to the end of 2021. That's an amount of money that's hard to digest, but can best be understood as mounting pressure. The more money is invested in startups in a particular sector, and the longer it remains illiquid, the more investors anticipate exits, which means liquidity, of course, from exercises like IPOs.
But if public markets refuse to pay the prices private market investors have long expected, liquidity will be tight. Why ?.
declines, falls
Looking at the benefits of Nubank and that public market investors have cut back, shares of Block they are barely alone.
The leader of BNPL, Affirm, has seen its value plummet from 176,65 at its peak to just 36,24. Robinhood has seen its value fall from a high of 85 per share to 11,28. SoFi it has also suffered falls, from a 52-week high of 24,95 per share to just 10,10.
The list goes on. Toast, which reached a value per share of 69,93, was worth only 18,06. olo, a competitor of Toast, has suffered valuation drops of 49 per share on its own record to just 14,57. And in insurtech, a subset of fintech, has endured more penalty from public market investors than we thought possible. The situation is very complex.
PayPal It's a good point of illustration. The company is worth $103.47 a share today, with a market capitalization of more than $120 billion. It seems more than correct but it is not. It was worth 310,16 per share in the last year, about triple its current price. And that happens with PayPal. It's huge, and yet investors aren't too excited.
The question that cannot be answered yet is this: how many fintech mega-companies were funded last year at valuations that made sense when fintech stocks were at their peak? And the corollary: how many of those fintech mega-companies can grow with just their current asset base at those prices at renewed revenue multiples, read much worse, before they have to exit?
It is not known. But there are hundreds of billions who depend on the answer.
