Fintech startups are taking the downturn harder than most other sectors, data indicates. So much so that even the largest and best-known private fintech companies are suffering from embarrassing revaluations.
Data collected by Andreessen Horowitz, a well-known venture capital firm with a history of investing in financial technology — most recently, crypto — shows that public fintech companies are suffering from greater valuation declines than other technology categories. At the same time, new information from Fidelity’s various funds indicates that the investing giant has changed its mind about the worth of some of startup land’s highest-flying companies, including Stripe.
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There is a well-worn chestnut in Silicon Valley that no matter the market conditions, the best startups will always be able to raise. The argument implies that during looser market conditions, as we saw in parts of 2020 and 2021, startups with less core strength will be able to raise capital only to later struggle when the market turns. In contrast, the best startups, no matter the macro situation, will plug along.
In one sense, the saying is a tautology; of course the best companies will have the highest chance of success — they are, after all, the best companies. In another sense, it’s a narrow comment. Yes, the best startups will always be able to raise. But at what price?
Left unsaid is the fact that even the private-market upstarts that have collected the most plaudits, valuation, capital and revenue during a boom may endure a repricing when the market shifts. That’s what’s going on with Stripe, though we shouldn’t be too shocked given the cyclone of data points supporting Fidelity’s latest. Let’s explore.
What’s Stripe worth?
Let’s start with a broad look at the value of technology companies. The Bessemer Cloud Index has lost more than half its value since late-2021 highs, with the basket of modern software companies falling from a peak of $65.51 to just over $30 today. If we slice the market more finely, we can see even greater valuation compression in fintech.
Enter Future, a16z’s in-house publication that it built during a fit of anti-media sentiment among the technology class. Per this piece on the investing group’s blog, public fintech companies’ valuations peaked at around a 25x forward revenue multiple in October 2021. Since then, the same fintech cohort of stocks has fallen to around 4x their forward revenue (we’re reading from a chart, so the data cited here is more directional than exact).
Other categories of public tech company saw sharp declines, like enterprise companies’ peak forward multiples falling from perhaps 16x or 17x to around 7x. But no category took more stick since the 2021 bubble burst than fintech. (This is one reason why we are not seeing fintech IPOs this year, among other contributing factors.)
From that perspective, seeing Fidelity revalue its stake in Stripe is not a surprise.
To get a feel for how Fidelity has valued and revalued its Stripe stake over time, we’ll pull from Business Insider and Bloomberg reporting, as well as filings with the U.S. Securities and Exchange Commission:
- December 31, 2021: $41.82 per share [source].
- Earlier this year, Insider reported that Fidelity cut the value of Stripe stock in its funds “to $36.25 a share at the end of January and then again to $32.20 at the end of February.”
- March 31, 2022: $36.96 per share [source].
- And this week, Bloomberg reported that “Stripe shares were reduced to $32.05 apiece” by the investing powerhouse in April.
If you want to have as much fun as TechCrunch this morning, enjoy parsing Form N-PORTs from Fidelity funds going back in time. It’s actually a good exercise if you want to get a feel for the guts of major investing companies’ portfolios, like the Fidelity Contrafund. Anyhoo, what matters is that the value of Stripe stock has changed since its last funding round. Furthermore, we can trace Fidelity’s sentiment on the fair value of its equity in the payments unicorn as falling 23.4% since the end of 2021.
A question is whether that is enough. In the same piece reporting the Stripe numbers, Bloomberg notes that Instacart has seen around half its value deleted by Fidelity estimates, a sharper reduction in worth. Then again, it’s generally accepted knowledge amongst the tech set that Stripe is a stronger business than Instacart, as the former is a pure software play while the latter has a far more complicated IRL component, affording it far slimmer gross margins.
If Instacart has taken a 50% cut in worth, more or less, a roughly 25% reduction for Stripe is perhaps reasonable, even if the a16z dataset cited above might have led us to anticipate a shaper correction; Stripe is likely growing far more quickly than its public-market peers, meaning that it may be partially insulated from the scale of valuation decline that its public comps are enduring today.
What’s wild about writing this story is that we’re effectively treating Stripe and other decacorns as public companies, tracking their valuation changes based not on the value of new equity rounds, but instead regular updates from public-market investors. This leads us to ask an obvious question: Why didn’t these mega-unicorns with valuations north of $10 billion just go public when the markets were screaming for their stock?
There are a few possibilities that we don’t need to tease through here — fill in the blanks yourself — but none feel like enough to really grant the decacorn cohort a full reprieve from guilt for not going public while they could have at peak pricing. Now they are stuck with the same need to go public — and a far worse climate in which to do so.
A lesson, perhaps.