The latest in FinTech fundraising and valuations

David Harvey our consultant managing the role

Global fintech funding totalled $15 billion in the first quarter of this year, up 55% on Q4 2022, according to CB Insights’ latest State of Fintech report.

But when you consider earlier investment levels, this is a fraction of what it once was. 2021 and 2022 were unique years where investment records in FinTech's were broken. In 2022, FinTech funding mounted to $75.2 billion in all of 2022, down 46% compared with a staggering $131.5 billion raised in 2021

With this context in mind, we have reviewed Pitchbook's latest research into the FinTech & Payments Public Comp Sheet and Valuation Guide to understand how this will affect the FinTechs in the next 18 months. 

Key takeaways from the report 

  • Investors want to see profit:  

 Q1’s valuations show that the market continues to favour profitability over profitless growth. Highlighting this, the Nasdaq rose by 16.8%, but the stocks of many of the fastest-growing FinTech’s were roughly flat or even down. 

  •  Valuations are still depressed:  

Valuations are still exceptionally low, with the neobanks, brokers and crypto cohort trading at a median enterprise value.  

There have been several key strategic changes in VC-led FinTech's. These changes signal that a peaceful transition intended to bring in best-in-class leadership and operational and managerial ability. A new CEO is a good middle ground. We expect recently public fintechs to take notice of these types of movements 

  • First time M&A underscores desire to grow by newly public FinTechs, despite low valuations:

We expect further acquisitions from companies that generate free cash flow and have cash and borrowing capacity.  Acquirers are pursuing multiple goals:  

  • Quickly acquiring new products and services to cross-sell while reducing execution risk  
  • Incremental revenue growth 
  • Defensive positioning 
  • Generating profit through scale 
  •  Adding talent 

These acquisitions underscore their ambition and wherewithal to execute despite lower stock prices. 

  • 2024 revenue estimates are declining:

Pitchbook expects we will see an increase in deceleration in revenue growth as public markets investors pressure fast-growth, low-profit companies to cut expenses to reach profitability. Indeed, mutual fund and hedge fund investors have a lower tolerance for lack of profitability. 

  • Market caps reveal which fintech cohorts have succeeded and which have not delivered: 

The market cap rose from December 31, 2022, to March 31, 2023, for the neobanks cohort, high-growth payments cohort, and high-growth fintech cohort, while it declined for the InsurTech cohort. Our InsurTech market cap was $3.5 billion on March 31, compared with $18.9 billion of total capital raised. 

What does this all mean for the FinTech market?  

Whilst compared to the heady days of 2021 and 2022, the Pitchbook report makes for sober reading for those in FinTech which have yet to reach profitability, all is not lost. According to CB Insights, early-stage deal share hit a record high of 72% of the deal activity, up from 69% in 2022.

This is due to investor concerns over inflated 2021 valuations and uncertain public markets, which are compelling them to invest in smaller, less risky early-stage rounds. However, among the top 10 seed and angel rounds, 60% went to FinTechs outside of the US. 

What is next for the FinTech sector?  

Pitchbook anticipates that over the next few years, most newly public FinTechs with depressed stock prices will fit into four buckets: 

  • Leadership change accompanied by a push for a strategy refresh, operational excellence, and/or cost reductions  
  • Acquisition by a competitor, complementary business, or incumbent 
  • Private Investment in Public entity (PIPE) investment once stock prices rebound 
  • Continue working toward scale and potentially launch new products 

Everything is to play for in the second half of 2023 and the whole of 2024. The market is without doubt on a correction course. The sector must recover from the periods of sharp growth and lack of profit through to the lack of investment and declines in overall fortunes.  

Many have been speculating when investors will act, they have elevated levels of dry powder and heaps of patience.  

Why FinTech’s need to have a robust finance team to scale 

An inhouse finance function is imperative within a dynamic and growing business. A core accounting team will ensure reporting and regulatory deadlines are met, keep day-to-day finance responsibilities ticking over, manage and run your audits and ensure the business is operating with robust financial controls at a fraction of the cost of an outsourced provider. 

Hiring Financial Planning & Analysis professionals is crucial for any growing business and particularly when working towards becoming profitable, FP&A will provide real time analysis on your businesses financial position, be a strategic adviser to senior leadership teams on major decision making and plays a big part in a business working towards and reaching it’s goals.

 How Marks Sattin can help you grow your FinTech 

Despite the reduced investment, FinTech will continue to disrupt the financial industry. With many traditional financial institutions failing or refusing to adopt an innovative approach, thus is leaving the door open to ambitious businesses that want to create a brighter future for finance.

The Marks Sattin team is highly experienced in sourcing talented finance and technology professionals for fast-paced businesses. Here at Marks Sattin, we partner with forward-thinking financial institutions, matching them to ambitious individuals. If you are looking for your next role in fintech you can find all our latest roles here.  

Alternatively, if you are a business looking for top-quality candidates you can submit a brief here.  

15/05/23
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