Naked, the father Nubank company released its fourth quarter financial performance and, in response to rapid revenue growth and an improving economy, the company saw its value drop 9% in today’s regular trading after falling sharply in recent sessions. Now worth just $8 a share, Nu is submerged relative to its IPO price and below about a third of its all-time highs.
He is hardly alone in his struggles. Fintech valuations have taken a hit in recent months, perhaps even more so than the larger software market itself; SaaS and cloud stocks have hardly covered themselves in glory recently, but declines in fintech stocks could take the cake when it comes to negative returns of late.
The Exchange explores startups, markets and money.
Read it every morning on Ploonge+ or receive The Exchange newsletter every Saturday.
Why do we care? Because fintech may be the best-funded startup sector. Ploonge reported earlier this year that fintech startups collected about a fifth of venture capital dollars last year. One in five dollars from a record year of venture capital, we might add.
It is no exaggeration to say that as fintechs advance, so does the startup market and therefore the return profile of venture capital.
So how are we supposed to balance plummeting public market valuations for fintech companies and just plain crazy private market investments? That’s our question today. To understand the issue, if not the solution, let’s start with an update on fintech venture capital results, the fintech liquidity crisis, and what happened to fintech stocks.
Unless you own a lot of stocks in fintech startups, this is going to be fun.
Venture capital loves fintech
The amount of capital granted to fintech startups is hard to fathom. In 2021, out of a total of $621 billion in private market capital invested generally under the venture umbrella, about $131.5 billion in 4,969 deals went to fintech startups. These data, from CB information, also indicated that dollar volume for the sector was rising faster than turnover. Which, if you run the numbers, allows for greater deal size over time.
This is from an industry that raised $49 billion from 3,491 deals in 2020. That’s a 168% gain in a single year.
You know the names: Brex and Ramp and Airbase created in 2021, just like Stripe did. And FTX and OpenSea. The list is full of great companies that help consumers and businesses manage, invest, and move money.
Chime raised $750 million in Series G last August, a deal that raised its valuation to about $25 billion. Which, you think, naturally makes the company an IPO candidate for 2022, right? Just maybe, it seems. Forbes reports that the company’s IPO has been delayed to late 2022, perhaps until the fourth quarter. that was before Nu reported strong growth and its first adjusted profitability for the full year and had a tenth of its value decapitated after suffering declines in the past few trading sessions.
Does Chime want to go public in this market? Probably not, with investors hurling slander at one of its 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. It’s a hard sum of money to grok, but we can best understand it as mounting pressure. The more money that goes into startups in any particular industry, and the longer that money sits illiquid, the more investors have expectations of outflows — which means liquidity, naturally, from things like IPOs.