Fintech Startups Are in Serious Trouble (protocol.com) 36
The higher you climb, the harder you fall -- and that spells trouble across the board for fintech startups right now. From a report: Already fintech multiples plummeted faster, and harder, than the rest of the tech sector. A chart published by a16z shows that the peak of forward revenue multiples for fintech companies was in October 2021 when it hit near 25x. Now, it's nosedived to below 5x. This is a worse slide than sectors like the cloud, according to data from F-Prime Capital. Up until 2019, fintech had been in relative lockstep with the emerging cloud index, but it ballooned in 2020 and 2021 to be way above the performance of cloud companies. But since the beginning of the year, F-Prime's fintech index has been crashing. It fell below the cloud index at the end of March. As public fintech companies are seeing their market caps shrink, it's going to be harder for private companies to justify their own rich valuations. Publicly traded Marqeta has a market cap now around $6 billion and processed over $100 billion in transactions last year. There are similar startups doing a sliver of Marqeta's volume but with valuations at or near $1 billion, Sacra's Jan-Erik Asplund pointed out -- an outsized mismatch.
The trickle-down from the public market's reset hit extra hard this week. More fintech startups began to make cuts. Some might find themselves raising a down round. Of the 19 layoffs listed on Layoffs.FYI this week, nine were at financial companies. Klarna told employees it would lay off 10% of its workforce via a video message this week. "When we set our business plans for 2022 in the autumn of last year, it was a very different world than the one we are in today," CEO Sebastian Siemiatkowski said in the video. It was rumored that the company was going to try to raise its valuation from last summer's $46 billion to $60 billion in February, but it's now facing a potential valuation cut down to $30 billion. Fast was the first to collapse, but now its rival Bolt has had to lay off hundreds. Its layoffs are a particularly nasty kind after many employees took out loans to exercise their stock options. MainStreet, which helps startups discover tax credits, already laid off 30% of its staff weeks ago. Now TechCrunch reports that it's potentially facing a 60% discount in its valuation as part of a recap.
The trickle-down from the public market's reset hit extra hard this week. More fintech startups began to make cuts. Some might find themselves raising a down round. Of the 19 layoffs listed on Layoffs.FYI this week, nine were at financial companies. Klarna told employees it would lay off 10% of its workforce via a video message this week. "When we set our business plans for 2022 in the autumn of last year, it was a very different world than the one we are in today," CEO Sebastian Siemiatkowski said in the video. It was rumored that the company was going to try to raise its valuation from last summer's $46 billion to $60 billion in February, but it's now facing a potential valuation cut down to $30 billion. Fast was the first to collapse, but now its rival Bolt has had to lay off hundreds. Its layoffs are a particularly nasty kind after many employees took out loans to exercise their stock options. MainStreet, which helps startups discover tax credits, already laid off 30% of its staff weeks ago. Now TechCrunch reports that it's potentially facing a 60% discount in its valuation as part of a recap.
Really? Fintech? (Score:3)
Re: (Score:2)
Re: (Score:2)
Some of these loans are better than credit card as they are less likely to build up. An irresponsible bor
Re: (Score:2, Insightful)
It's like we're stuck in the 90s. Anything with a server or a web site has to be called "tech". It's kind of dumbing down the whole concept of "tech".
Re:Really? Fintech? (Score:4, Insightful)
FinTech is an annoying conglomeration of "Financial" and "Tech."
"Loan shark with a web site" sounds like a pretty good description to me. I suppose "loan shark with an app" might be better.
Re: (Score:3)
+1 informative! For me at least. I thought that fintech meant tech companies from Finland. TFS didn't help.
Re: (Score:2)
Your version would probably be less depressing.
Re:Really? Fintech? (Score:4, Funny)
That would be Finntech.
And if they actually make a good online financial product thingie, it would be Finetech Finntech Fintech.
Re: (Score:2)
I struggle to see how a company like Klarna can be classed as a Fin"Tech". It's just a loan shark with a web site isn't it?
A loan shark with a web site sounds like a perfect example of "Financial Technology" to me.
"Fintech" (Score:5, Insightful)
"Fintech" is just a word that means unregulated banking and payment services, but with snazzy web design and more apps! Fintech and cryptocurrency are wildcat banking all over again.
Re: (Score:2)
"FinTech" = "DeFi" = "Deregulated Finance" (Score:1)
All one and the same
Re: (Score:3)
It is more than the modern round of vultures; there are long established fintech vultures like PayPal. There are also companies that provide services to financial vultures that come under the same umbrella.
Unregulated? (Score:5, Informative)
I don't know about the USA but here in the UK if you're going to process or invest peoples money even on behalf of a 3rd party you need to be regulated by the FCA. If you ignore that requirement you're operating illegally and there'll be a nice warm cell waiting for you if you get caught.
Re: (Score:2)
That's true in the US too, but more commonly they run into problems because with finance software, you can't just "release it now and fix it in production." If you do that, inevitably you'll break the law.
Re: (Score:2)
They use a real bank for the ACH transfers but there classified as a tech company and are not regulated it's the same in the UK and US.
Re:"Fintech" (Score:5, Insightful)
Makes you wonder if there's value in all that data they've been slurping up from their "customers".
Certainly the principals of an unregulated company that's in a desperate cash doom-loop with funding shut off wouldn't resort to selling all that juicy highly-exploitable private data to any entity that flashes cold hard cash in front of their faces, would they?
Of course not, don't be silly.
Re: (Score:1)
Thanks for coming to the defense of those poor, beleaguered banking fat-cats, who are so well-regulated that they the biggest good in the world.
Besides, nobody should be allowed to try and fail. Where would that lead?
Re: (Score:2)
Indeed. "Investment" and "banking" for the stupid.
Re: (Score:2)
"Fintech" is just a word that means unregulated banking and payment services, but with snazzy web design and more apps! Fintech and cryptocurrency are wildcat banking all over again.
No. You're thinking of "DeFi". There's nothing unregulated about "Fintech". They often must follow the exact same laws that any bank or other member of the financial industry do.
Re: (Score:2)
Technically true. But then they're the most common way to buy into crytpocurrencies/DeFi.
I'd use the analogy of Fintech being the uncut diamond dealers just outside the gates of the worst criminal market that ever existed, but it's actually worse than that - it' more like they exchange cash for special poker chips that are very questionably minted in, and have little use outside of, that market.
Re: (Score:2)
"Fintech" is just a word that means unregulated banking and payment services, but with snazzy web design and more apps! Fintech and cryptocurrency are wildcat banking all over again.
When I think of Fintech here in the UK, I think of things like Starling, Monzo and Revolut that are regulated banking services, but have chosen a low cost business model eschewing traditional banking services that many people simply don't use any more. I.E. they are online only, with no branches or even physical offices that you can visit.
It may very well be the case that in the US a lot of "fintech" startups are just unregulated banks (a lot of start ups in the US just seem to be companies trying to ign
Boo-fucking-Hoo! (Score:4, Insightful)
Propagate scams under the guise of 'tech innovations', feel the burn when you're exposed.
Re: (Score:2)
i wouldn't say that having your "forward revenue multiple plummeting to 5x" is getting burned. someone is still giving these guys quite a bit of money, although not as much as they desire, but all i can say is that it's not me. if it were for me this whole industry wouldn't even exist.
it will be fun to watch when they do crash, specially if they do all at once, but we're not there yet!
Re: (Score:2)
Are you also confusing fintech with DeFi? The former is not typically known for scams and are usually regulated under the same rules as banks.
Burn baby burn (Score:3)
I feel bad for the innocent people who were taken in by this scam, but not sorry at all that it is finally crashing and burning. Good riddance.
Re:Burn baby burn (Score:5, Interesting)
I would mod you positive, but then I couldn't comment.
Absolutely spot on. I lost 10K on cryptocurrency. I was greedy & stupid. Thankfully limited my investment to "I wont cry if I loose it all", but heck, it still hurts. Smarter people made money.
Re: (Score:2)
I feel bad for the innocent people who were taken in by this scam
What scam? Are you also confusing fintech (startups which use technology to cut costs and provide financial services for a fraction of the price) with defi (scammy bullshit pretending its not money)?
Re: (Score:3)
Tiptoe through the fintechs (Score:2)
We're heading into a cyclical recession of the ordinary kind we get every few years. For most diversified long-term investors, no permanent harm will be done. But every economic cycle has its bubble that will burst. This time, it will be crypto and all the faddish dross associated with it. Your apes will be shit.
Didn't realize Finland had a booming tech industry (Score:2)