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The Solution To The Fintech IPO Shortage

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Fintech IPO

Fintech IPO

Fintech IPO-OBSERVATIONS FROM THE FINTECH SNARK TANK

A Seeking Alpha article titled Why Fintech May Not Be Fit For Public Consumption states:

The year 2019 seems set to be a record-setting one for venture capitalist exit value capture by means of tech IPOs. But fintech doesn’t seem to be a part of this picture. VCs are certainly putting money into fintech startups. There were 170 financings in the US in the first quarter of 2019. But, as Pitchbook says, ‘not one of the most valuable fintech companies in the world seems particularly close to an offering.’ “

The article chalks this up to three primary causes:

1. Poor IPO performance in 2018. According to the article, “One reason nobody is in a hurry to go public is that the results of the last crop of fintech concerns that did go public have been unimpressive. Adyen and IntegraFin are prospering, but neither GreenSky nor EverQuote is “lighting up the heavens” according to Seeking Alpha.

2. Mega-round financing. Seeking Alpha postulates that investor interest in mega-rounds–e.g., Qatar Investment Authority’s investment of $500 million in SoFi and Tiger Capital leading a round that raised $300 million for Coinbase–is another factor dampening interest in IPOs. According to Jim Marous, publisher of the Digital Banking Report:

With all of the mega-round investment in fintech firms, you would think more fintech players would cash out and go the IPO route. But why would successful fintechs, who appear to have a bottomless pit of funding at their disposal, subject themselves to the massive scrutiny that comes from going public? Fintech firms don’t see a slowdown of the funding fire hose and have no desire to lose control of their vision.”

3. Lack of scale. Seeking Alpha asserts that fintech “doesn’t scale as easily as other sorts of tech,” making fintech startups less likely to be IPO candidates. According to one veteran of the fintech startup scene (a founder and angel investor who now heads up technology innovation at a large bank, which is why he prefers to remain anonymous):

People underestimate the scale dynamics of financial services. You need a lot more maturity across all measurable KPIs before you can be successful in the long-term. In an ecosystem with these scale dynamics, if a fintech startup can use private capital at favorable costs to grow operations and monetize employee equity, and avoid the distracting microscope of quarterly filings, it’s going to do so.”

Pascal Bouvier, Managing Partner of Middlegame Ventures echoes this sentiment, but points out that there are startups who have achieved scale and still not gone public:

Stripe is an example of a fintech that should already be public–they’ve achieved scale. But for others, operational readiness at massive scale is key in order to go public. If you do not achieve repeatability in your core business you end up suffering post-IPO.”

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Article Credit: Forbes

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