Fintechs delay IPO plans, focus on profitability amid fears of recession
Investments in fintechs are slowing as concerns about rising inflation and the prospect of higher interest rates have dented economic sentiment.
Elena Novello | moment | Getty Images
AMSTERDAM – Financial technology firms are suspending IPO plans and cutting spending as fears of an impending recession cause a shift in the way investors view the market.
At the Money 20/20 conference in Amsterdam, the heads of major fintech players sounded the alarm about the impact of a deteriorating macroeconomic climate on fundraising and valuations.
John Collison, co-founder and president of Stripe, said he’s not sure the company can justify its $ 95 billion valuation given the current economic environment.
“The honest answer is, I don’t know,” Collison said on stage Tuesday. Stripe raised venture capital funds last year and isn’t currently looking to raise it again, she added.
Comes as buy now, pay later the Klarna firm is reportedly looking to raise new funds at a 30% discount from its $ 46 billion valuation while rival group to assert has lost around two-thirds of its market value since the beginning of 2022.
Zopa, a UK-based digital bank, hoped to go public by the end of 2022. But this seems less likely as inflationary shocks exacerbated by the war in Ukraine led to a crash in both the public and private markets.
“The markets have to be there” for Zopa to go public, CEO Jaidev Jardana told CNBC. “The markets are not there, not for the fin, not for the technology.”
“We will just have to wait when the markets are in the right place,” he added. “You only want to do an IPO once, so we want to make sure we pick the right time.”
The tech sector has taken the brunt of a market sell-off since the start of the year as investors digested the likelihood of a dizzying rate hike cycle, making future earnings for growth stocks less attractive.
Several executives and investors have said that rising inflation and interest rate hikes are making it more difficult for fintech companies to raise funds.
“Within the investment community, the atmosphere is very gloomy,” Iana Dimitrova, CEO of payment software company OpenPayd, told CNBC.
OpenPayd is raising funds, but it’s unclear when the company will be able to finalize the round, Dimitrova said.
“People are definitely moving much slower now than they were a year ago,” he said. “They are more cautious”.
Prajit Nanu, co-founder and CEO of San Francisco-based payments firm Xiaomi, said he expected a “massive consolidation” in fintech.
“Companies that don’t grow will be consolidated or closed,” he said.
The big fear is that fintech growth will slow along with the economy at large as soaring prices will force consumers to tighten the purse strings. cut their predictions for global economic growth, warning of a prolonged “stagflation”, a situation in which inflation remains high but growth stops.
Investments in the fintech sector exploded last year, hitting a record $ 132 billion globally, thanks in large part to the effects of Covid lockdowns on people’s shopping habits. But, as concerns about rising inflation and higher interest rates hit the mark, funding fell 18% in the first quarter from the previous three months to $ 28.8 billion, according to data from CB Insights. .
“There will be more of a focus on the unit economy than just crazy growth,” Ricard Schaefer, partner of Target Global and one of the first investors in the Revolut financial services app, told CNBC.
Stripe’s Collison gave fintech founders a simple piece of advice at the conference: grab the 2021 investor pace.
“They absolutely cannot make the step of 2021,” he said. “It must be a new field, a field of 2022”.
Ken Serdons, commercial director of Dutch payment company Mollie, agrees. Fintechs looking for new funds will now have to present a “clear path to profitability,” he said.