Fintechs Face Reckoning as Easy Money Dries Up (ft.com) 16
Valuations have collapsed even faster than they climbed, making fresh funding hard to come by. From a report: As a wave of fintechs rode successive funding rounds to ever-higher valuations over the past five years, Swedish buy now, pay later company Klarna declared its ambition to become the Ryanair, Tesla and Amazon of the sector. But now as central banks raise rates in a fight against surging inflation, Klarna is trying to raise fresh cash at less than half its peak $46bn valuation and fintechs are having to come to terms with a world where expansion can no longer be fuelled by cheap money and business models must be demonstrated by profits. A record amount of investment poured into fintech companies in 2021, but many now struggle to raise fresh funds and are discussing selling themselves or accepting lower valuations to stay afloat, according to investors, analysts and executives in the industry.
On Thursday, payments services provider SumUp raised cash at a valuation of $8.5bn -- significantly below the $21bn valuation mooted earlier this year. And as belts tighten, a fintech's chances of survival may be measured by the amount of cash sitting on its balance sheet. "You are in panic mode if your runway is less than a year," said Erik Podzuweit, founder and co-chief executive officer of German investment app Scalable Capital. Venture capital firms more than doubled their investments in the sector last year to $134bn, helping fintech valuations outperform any other tech subsector, according to Crunchbase data. Funding peaked in the second quarter of 2021 as investors such as Accel, Sequoia Capital, SoftBank and Berkshire Hathaway backed groups including Brazilian digital lender Nubank, German broker Trade Republic and Amsterdam-based payments company Mollie. Financial services companies accounted for roughly $1 out of every $5 in venture capital investment last year.
But now public fintech valuations have collapsed even faster than they climbed as funding slowed sharply in the first quarter. Fintech valuations have had a steeper decline than any other technology sector, according to a recent report by Andreessen Horowitz partners, which cited data from Capital IQ. Valuations fell from 25 times forward revenue in October of 2021 to four times in May. Fintech fundraising in the most recent quarter dropped 21 per cent to $28.8bn from the record high of $36.6bn reached in the second quarter of last year, according to CB Insights.
On Thursday, payments services provider SumUp raised cash at a valuation of $8.5bn -- significantly below the $21bn valuation mooted earlier this year. And as belts tighten, a fintech's chances of survival may be measured by the amount of cash sitting on its balance sheet. "You are in panic mode if your runway is less than a year," said Erik Podzuweit, founder and co-chief executive officer of German investment app Scalable Capital. Venture capital firms more than doubled their investments in the sector last year to $134bn, helping fintech valuations outperform any other tech subsector, according to Crunchbase data. Funding peaked in the second quarter of 2021 as investors such as Accel, Sequoia Capital, SoftBank and Berkshire Hathaway backed groups including Brazilian digital lender Nubank, German broker Trade Republic and Amsterdam-based payments company Mollie. Financial services companies accounted for roughly $1 out of every $5 in venture capital investment last year.
But now public fintech valuations have collapsed even faster than they climbed as funding slowed sharply in the first quarter. Fintech valuations have had a steeper decline than any other technology sector, according to a recent report by Andreessen Horowitz partners, which cited data from Capital IQ. Valuations fell from 25 times forward revenue in October of 2021 to four times in May. Fintech fundraising in the most recent quarter dropped 21 per cent to $28.8bn from the record high of $36.6bn reached in the second quarter of last year, according to CB Insights.
It's all right - we can all buy the companies now (Score:5, Funny)
Oh you'll pay (Score:2)
Indeed, if you buy tech companies with still high P/E or no real income now, you will indeed be paying later...
Re: (Score:2)
Re: (Score:1)
Double whoosh!
I guess we are just ships passing in the night, you not getting my post and me possibly not getting yours.
Lessons of the Great Depression forgotten (Score:4, Insightful)
And before the Great Depression they learned a few lessons from the previous big crash. Many of those lessons were legislated and written into regulations. Which mostly got unwound starting in the 1980s.
We could have relearned some of those lessons in 2008. Well, maybe not exactly the same lessons, but mostly the same underlying problems of incredibly greed and selfishness and the love of gamesters to gamble bigger and harder, so the lessons should have been similar.
So now I can blame Obama the same way I blame Gore? By doing a good job getting the Internet seed money from Congress, Gore got them to ignore the money aspects, leading to the email spam problems we still suffer from. And by doing a good job in avoiding a greater depression in 2009, Obama let them ignore the lessons that should have been learned not so long ago...
It's a joke. Why aren't you laughing?
Re: (Score:2)
Thanks for the kind mods? On looking back to see why it got modded up, I think it needs clarification...
Wait, you're serious? (Score:2)
Let me laugh harder.
Re:Wait, you're serious? (Score:5, Insightful)
Even the dumbest loan shark doesn't loan money to everyone, and chances are good that they want some kind of collateral. That's why you see pawn shops and Pay Day loan places that require your car title.
Klarna is in the business of putting high end luxury items in the hands of people that don't qualify for a credit card. I suspect that their repayment rates are terrible.
Re: (Score:3)
There's a lot of competition in that market. Banks have the high end sewn up with credit cards and Larry, with his associate Tony (and his bat) have the low end.
Re:Wait, you're serious? (Score:4, Funny)
and Larry, with his associate Tony (and his bat) have the low end.
Yes, but remember Fintech is Larry and Tony *on a phone*. Undercutting the bat and literal legwork (and arm work) with technology.
Re: (Score:2)
And that's the problem. You're trying to target the people in between the ones who eventually pay their strongly worded credit card bills and the ones who require a personal touch. Maybe they've invented an AI that writes extra threatening e-mails?
When your business model (Score:2)
is to shuffle around money and this is something that you could at a bank for the last 100 years in many cases for free, I don't think you have a viable business model. And don't tell me that cool flashy algorithms that waste energy and business models that waste money are a better way to move money.
horseshit business (Score:4, Interesting)
the best way to cash out cryptocurrency (Score:1)
SumUp... (Score:2)
SumUp and some down