Nubank’s parent company, Nu, released its fourth-quarter financial results today, and the business’s stock dropped 9% in regular trading today after plunging substantially in prior sessions, owing to strong revenue growth and strengthening economic conditions. Nu is now worth just $8 per share, a third lower than its IPO price and a third lower than its all-time highs. It is far from alone in its difficulties. Fintech valuations have taken a beating in recent months, possibly even more so than the larger software market. SaaS and cloud stocks haven’t exactly been shining lately, but falls in fintech firms may take the cake in terms of recent negative returns.
Why should we be concerned? Fintech could be the most well-funded startup sector. Fintech businesses received almost a quarter of venture capital dollars last year, according to TechCrunch. We should point out that this is a complete one in every five dollars from an all-time record venture capital year. It’s no exaggeration to argue that as the fintech sector grows, so does the startup market, and hence the venture capital return profile.
So, how can we strike a balance between declining public-market fintech valuations and insane private-market investment? That is the topic of our discussion today. Let’s start with a refresher on fintech venture capital outcomes, the fintech liquidity constraint, and what has occurred to fintech stocks to get our heads around the problem, if not the solution. This will be entertaining unless you own a large number of shares in financial technology businesses.
It’s difficult to comprehend the amount of funding available to financial technology firms. Fintech businesses received $131.5 billion out of a total of $621 billion in private-market capital invested under the venture banner in 2021, spread across 4,969 agreements. CB Insights’ analysis also showed that dollar volume in the industry was increasing faster than deal volume. If you do the math, this allows for larger deal sizes over time.
This is coming from a sector that in 2020 raised $49 billion in 3,491 deals. In a single year, that’s a 168 percent increase. Brex, Ramp, and Airbase were all raised in 2021, much like Stripe was. As well as FTX and OpenSea. There are a lot of big organizations on this list that assist consumers and businesses manage, invest, and move money around.
Chime raised a hefty $750 million Series G investment in August, valuing the company at about $25 billion. Which, you might believe, automatically qualifies the company for an IPO in 2022. It turns out to be only a possibility. According to Forbes, the company’s IPO has been postponed until late 2022, possibly even the fourth quarter. That was before Nu reported strong growth and its first full-year adjusted profitability, and before the stock lost a tenth of its value after falling in recent trading sessions.
Is Chime interested in going public in that market? With investors slamming one of its most well-known global contemporaries, it’s unlikely. From the beginning of 2018 to the end of 2021, about $400 billion was invested in fintech firms. That’s a large sum of money, but it’s easier to comprehend if we think of it as mounting pressure. The more money that flows into a sector’s startups, and the longer that money stays illiquid, the more investors anticipate exits — which, of course, means liquidity via things like IPOs.