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The AltFi view on fintech mega-rounds: Fully-justified
It’s easy to be shocked by booming valuations, but the sector’s growth in the last 12 months is undeniable.
Weekly Leading Article
Over the last few months, it seems venture investors have been willing to write cheques at valuations the size of which we’ve never seen before in fintech:
Klarna last week saw its valuation launch from $31bn to $46.5bn with
,
Nubank also
its Series D to $1.15bn at a $25bn price tag thanks to Warren Buffett,
In April Plaid’s
from $5.3bn to $13.4bn,
Stripe in March soared from
$36bn to $95bn,
And in January Checkout.com kicked off 2021 by
from $5.5bn to $15bn.
Add in the fact that several $10bn+ rounds are currently in progress (including Revolut’s), and things sure look ‘bubblicious’ out there.
Yet, before we write off 2021 as being caught up in fintech euphoria... look back over the last year and today’s sharp increase in valuations appear rather more reasonable.
Jumping from 2019, to 2021
Today’s rounds should be viewed as a continuation of what we saw in 2019 when fintech investment was also on a tear.
Back then, a wave of multi-billion-dollar funding rounds were lifting the sector to a record high—Greensill, Checkout.com, Klarna and N26 all leading the way with single-digit billion-dollar valuations.
Then, at the turn of the decade, this rapid ascent was put on ice.
Initially, the cool-down came as SoftBank withdrew from the market in late 2019 following several high-profile Vision Fund portfolio disasters (WeWork’s failed IPO, Uber’s slashed valuation, etc.)
The disappearance of the world’s largest venture fund, in turn, scuppered several fintech mega-rounds and left a funding gap at the top of the market.
The real freeze then set in as Covid-19 put a halt on venture funding for much of Q1 and Q2 2020—this funding gap partly explaining why many of the rounds today are such a marked increase on what came before.
And while freezing investment, Covid-19 also triggered a dramatic acceleration for all of the businesses listed above, as buy-now-pay-later, online payments and open banking all exploded in popularity as the world collectively turned to eCommerce.
Klarna nearly doubled the value of ‘stuff’ its customers are buying-now-paying-later for, from $9.9bn to over $18.9bn per quarter in just a year.
Similarly, Checkout.com nearly doubled its revenues from just under $75m to over $146m.
Comparing these companies to their public market counterparts—where disclosure is far more regular—and you can see a similar explosion in value.
Adyen (€58bn), Afterpay (A$30bn) and Square ($100bn) have all seen tremendous increases in their share price in the last year of 60 per cent, 100 per cent, and 150 per cent respectively.
A rational reality
Viewed through this lens, the booming fintech valuations we see today in private markets are perhaps far more in line with the rational reality of fintech disruption taking place in the world.
Will some venture investors get carried away in the months ahead? Undoubtedly.
Will there be high-profile fintechs that fail? Almost certainly.
But will fintech also continue to transform the way we shop, spend, save and invest? Absolutely.
The AltFi Leader is a new weekly view for 2021 from our editorial team. We’d love to hear your ideas, thoughts, feedback and constructive criticism: editorial@altfi.com
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