When it’s low, how can it bounce back?

The recent fluctuations in venture capital funding have impacted the Fintech industry, confronting companies with valuation challenges and existential questions.

🤑 VC Funding: venture capital investment in fintech decreased substantially, from $141 billion in 2021 to $39 billion in 2023, according to CB Insights. This reduction has prompted many fintech startups to conserve cash to avoid fundraising at much lower valuations.

📉 Delayed IPOs: in response to the market conditions, many mature Fintech companies have postponed their initial public offerings. The value of already-public Fintech firms has fallen by approximately 50% from their peaks despite the S&P 500 and Nasdaq’s recent new highs. Some reputable public companies, like Bill, are down ~80% since their late 2021 peak.

🧮 Private valuations: Caplight, a San Francisco startup that tracks secondary-market trades of private tech companies, has shared with Forbes its estimates confirming the declines in value from fundraising peaks. Valuation drops can be dramatic (~79% for Klarna and ~74% for Chime) and illustrate persistent volatility. To be fair, the accuracy of secondary market valuations can be affected by the small transaction sizes and various seller motivations.

🚦Industry Insights: signs are emerging that valuations in the Fintech industry may be stabilizing or even improving for certain leading players, hinting at a potential market recovery. While the optimists might see a bottom, it remains tough to call without more fundraises or exits. This might leave many mid-stage Fintech scrambling to explore their options.

In short: buying time through down or insider rounds might be untenable for most Fintech startups. More founders and investors should consider alternatives for startups that don't exhibit the potential for IPOs or fund-returning outcomes. Structured growth equity strategies could offer investors better liquidity options and keep mid-stage startups in business by injecting capital and recalibrating their operations until their economics, not just market, bounces back.