Fintechs delay IPO plans, focus on profitability amid recession fears
As concerns about rising inflation and higher interest rates are weighing on economic sentiment, investment in fintech has slowed.
Elena Noviello | Moment | Getty Images
AMSTERDAM — Financial technology companies are putting IPO plans on hold and cutting expenses as fears of an impending recession cause a shift in how investors view the market.
Major fintech executives raised alarm at the Money 20/20 conference, Amsterdam about the negative impact on funding and valuations from a depressed macroeconomic climate.
John Collison was co-founder and President of Stripe. Given the economic conditions, he said he didn’t know if Stripe can justify the $95 Billion valuation.
Collison, who spoke on Tuesday, said that the truth was “I don’t know”. He said that Stripe received venture capital funding in the last year, and isn’t currently seeking to raise more.
Klarna’s buy now and pay later option is the best. reportedlyLooking to raise funds with a 30% discount on its valuation of $46 billion, while a rival group AffirmSince 2022, its stock market values have fallen by roughly 2/3 of their original value
Zopa is a British-based digital bank. It had planned to become public at the end 2022. This is becoming less probable as both the public and private market are experiencing inflation shocks from the conflict in Ukraine.
CNBC’s CEO Jaidev Jardana stated that Zopa must have the markets in place to make it public. “The markets are not there — not for fin, not for tech.”
He added that “We will only have to wait for the markets to be in the right places.” We want to be sure we choose the perfect moment for an IPO.
The tech sector has borne the brunt of a market sell-off since the start of the year, as investors digested the likelihood of a steep rate hiking cycle — which makes growth stocks’ future earnings less attractive.
Investors and executives stated that fintech firms are finding it increasingly difficult to raise funds due to rising inflation.
CNBC spoke with Iana Dimitrova (CEO of OpenPayd), about the state of the investor community.
Dimitrova stated that OpenPayd is currently raising capital, although it’s not clear when they will complete the round.
She said that people are moving significantly slower now than they were one year ago. “They are being more cautious.”
Prajit Nandu, the founder and CEO of Nium San Francisco, a payments company, stated that he expects “massive consolidation in fintech.”
He stated that companies which do not raise funds will either be consolidated or closed down.
There is a big concern that fintech’s growth may slow with the overall economy as rising prices make it more difficult for consumers to stretch their budgets. On Tuesday, economists from the World Bank discussed their concerns. cut their forecast for global economic growth, warning of prolonged “stagflation” — a situation where inflation remains high but growth stalls.
Investment in the fintech sector boomed last year, reaching a record $132 billion globally — thanks in large part to the effects of Covid lockdowns on people’s shopping habits. But — as worries around rising inflation and higher interest rates hit home — funding dropped 18% in the first quarter from the previous three months to $28.8 billion, according to data from CB Insights.
Ricard Schaefer (partner at Target Global, early investor in Revolut financial services app), stated that “there’s going to more of a emphasis on unit economics rather than just crazy growth.”
Stripe’s Collison shared a few words of wisdom with fintech entrepreneurs attending the conference. She suggested to them: Get rid of your 2021 investor pitch.
He stated, “They can’t possibly do the 2021 pitch.” It needs to be a brand new pitch. A 2022 pitch.
Ken Serdons (chief commercial officer at Dutch payments company Mollie) agreed. He said that fintechs looking for fresh capital now must present a clear path to profitability.