Fintech

Fintech unicorn valuations have fallen hard in 2022

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Fintech was hot in 2021, but looking back on it … maybe too hot?

The sector exploded last year, seeing record investment — $132 billion globally, according to CB Insights — with many startups reaching lofty valuations, including Stripe at $95 billion, Klarna at $45 billion and Plaid at $13 billion. While these companies have very real customer bases and products, it is not hard to imagine that at least some of these valuations were propped up by hype.

The dominoes have already started to fall here. In July, Swedish buy now, pay later startup Klarna raised $800 million at a new $6.7 billion valuation. That marks a stunning 85% decrease in valuation over the course of roughly a year. Ouch.

But it was at least refreshing that Klarna’s CEO, Sebastian Siemiatkowski, was one of the few who didn’t shy away from the realities of startup valuations in this market. He took to Twitter after Klarna announced its new lower valuation to acknowledge the current market conditions and state that the lower valuation didn’t mean it was actually doing all that much worse, citing profitability and growth into new markets. Klarna has continued to launch into new geographies since.

So, how are the other fintech hotshots from last year doing? Well, not so hot.

Data from early-stage fintech — ironic — startup Caplight found that a lot of fintech’s biggest names from last year have been taking a serious valuation haircut when selling their equity shares on the secondary market. But some look more drastic than others.

It’s also interesting that the valuations of many continued to rise last year before the reality of this year’s market crept in. One such example is Stripe.

Stripe, the digital payments behemoth, last announced its valuation, $95 billion, after raising $600 million in March 2021. But according to secondary sales, its valuation climbed all the way up to a peak of $201 billion in January 2022. That’s a crazy number and, of course, it didn’t last long.

Stripe’s valuation started to drop from there, a little more each week. Now, its secondary shares are trading at a $78.26 billion valuation. While yes, that’s a decline of 61% from its peak, $78 billion is absolutely nothing to scoff at. Plus, that isn’t the lowest the company’s valuation has been, which implies that there is investor confidence in the startup.

Stripe isn’t the only fintech valuation starting to turn around as we approach 2023. Caplight found that the valuations of Revolut, Klarna and Mercury have all started to tick back up in recent weeks.

How are other fintechs faring?

According to Caplight calculations, Brex is currently trading at a $7.13 billion valuation, which is down 44% from its peak; Plaid is down 46% to $9.08 billion; and Chime is down 61% at $11 billion.

My read on this is that fintechs aren’t doing that bad — they were just grossly overvalued. None of these companies dropped below the coveted $1 billion unicorn marker. This is more of an exercise in looking at just how much VCs are willing to pay for hype, because it’s important to remember that these are real unicorns, not shadow companies run by like 10 people in the Bahamas.

Of course, there isn’t zero blame pinned on the startups. Many of these overvalued companies have since had to lay off employees to cut costs and squeeze into their valuations, which results in real people suffering damaging financial consequences.

But we are really only at the beginning of how this downturn will impact startups. I don’t know about you, but I’m anxiously awaiting the valuations these (and many other) companies publicly announce next year.

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