Fintech

Fintech valuations have fallen. Where do they go from here?

Comment

Dominoes in a circle, one falling
Image Credits: Jordan Lye (opens in a new window) / Getty Images

With the market having changed dramatically since the heyday of 2021’s venture funding boom, fintech valuations have largely shifted accordingly.

With only a few exceptions, the once most valuable companies operating in the fintech space have seen their valuations drop significantly, based on secondary share activity as analyzed by Notice.co, a company that has built a pricing tool for the private markets.

One of the starkest examples of declines lies in payments giant Stripe, which saw its funding valuation hit $95 billion in March 2021. The company’s secondary market valuation peaked at nearly $200 billion in January 2022 (!), according to Notice’s data, which understandably caused frustration among employees who wondered why the company didn’t go public at that time. But as of the time of this writing, its secondary market valuation has plunged by 73% to $52.5 billion.

Only three fintech startups have actually seen their secondary valuations increase since January 2022: HR/payroll startups Rippling, Gusto and Deel. Those companies have seen their valuations climb by 103% (to $13.2 billion), 5% (to $10 billion) and 37% (to $6.5 billion), respectively, according to Notice.

Greg Martin (a co-founder and managing director at Rainmaker Securities, a secondaries trading platform) told TechCrunch+ that while some fintech unicorns are really solid businesses that were just a little overpriced, others haven’t come fully back down to earth yet. “Other people who are hanging on to their valuation are probably going to take longer to hit the bottom and find their way back up and have momentum,” Martin said.

Sparking momentum

The private markets are a great way to understand how companies are doing between funding rounds, said Notice founder and CEO Tyson Hendricksen.

“Financings are fewer and farther between these days, and the rounds that do get done often have structures that protect investors at the expense of employees and founders,” he told TechCrunch+. As a Global S&P report recently noted, funding to the sector was down almost 50% year over year, and the number of deals were down as well.

Image Credits: Miranda Halpern/TechCrunch

Martin said he thinks the secondary market is actually the most accurate place to find a company’s real valuation regardless of the overall market conditions. That’s because secondary deals get into a company’s real valuation and aren’t as influenced by optics sought out by both companies and investors, he said.

Still, buyers today are being picky, but both Martin and Hendricksen said they think that’s good. “Secondary demand is getting stronger in ‘blue chip’ names and companies with whispers of a coming IPO,” Hendricksen said. “Demand is weak for companies that fall outside this narrow band. New rounds, or the risk of new rounds, with heavy structure further limit buyer willingness to purchase earlier classes of shares that are likely to be negatively impacted when a down round or structured round happens.”

Martin has seen this as well. He said activity has started to pick up on certain companies, not because buyers were willing to pay more but rather because sellers had come down enough to spark momentum from investors. This momentum, he added, will be key for companies looking to raise enough interest to go public.

“In a way, it was smart to get to the bottom sooner because you will move up sooner, too,” Martin said. “Even though there were some pretty dramatic valuation [cuts], they actually set themselves up for the next round better.”

But he also believes there are “some good buying opportunities off the beaten path.”

Opportunities abound

Natalie Hwang, founding managing partner of Apeira Capital Advisors, said the compression of public company valuation multiples has caused investors to take a more conservative approach when valuing equity stakes in venture-stage startups, including fintech companies.

“Current challenges may have the impact of right-sizing the sector as well as valuations to give rise to a smaller but higher-caliber pool of companies that may become available to invest in at attractive prices,” she told TechCrunch+. “We believe that we may look back with the benefit of hindsight in 2022 and 2023 as optimal vintage years during which to deploy capital.”

PitchBook recently released its second-quarter Fintech & Payments Public Comp Sheet and Valuation Guide, and according to the data, share prices for recently public fintech companies have been rebounding faster than the wider market. They rose by 21.2% in the second quarter, compared with the Nasdaq’s 12.8% and S&P 500’s 8.3% return. How this will translate into the private markets remains to be seen.

However, it does look like the market is getting closer to pricing clarity. Martin said he is seeing more movement on the secondary market. Secondary-focused companies, including Forge Global and Caplight, have started to see this as well.

Hendricksen thinks that many fintechs will need to fundraise again soon. “We can expect down rounds that land somewhere near current secondary market pricing,” he said. “While there is plenty of pain ahead as official valuations reset, the companies that survive will be free of the unrealistic growth expectations built into their prior valuations. More investors and employees may finally be able to get the liquidity they need.”

More TechCrunch

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

6 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

7 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android