Strategic Finance, Corporate Development & Investments @HRT | Prev: @Unit, @Chime, @Sift, @JPMorgan | Duke '13
Will the real fintech valuation please stand up? Among fintech operators, we've been confused with the state of the fintech markets recently. If a bunch of public fintech companies market caps are up and to the right, why are private companies still down bad? Fintech nerds will jump in that startups raising rounds now need cash so they're taking downrounds. And you know - they're absolutely right. But I'm not talking about those companies. I'm talking about pre-IPO fintech firms that we all know and that seem to be doing okay. You might ask how to know the valuation of a company w/o a priced round? That's where secondary markets come in: EquityZen, Forge, Hiive and Notice.co allow anyone w/ company equity to sell it to others, usually for a ~2-5% fee. where marketplace price = valuation. And thanks to my favorite marketplace for valuation analytics Notice.co, I'm seeing this weird disconnect between public and private company valuations. Here's that comparison for 5 major fintechs, indexing back to when the private company last raised in a priced round: #1 Klarna vs. Affirm Now, Klarna admittedly took a beating when it took a 85% valuation haircut to $6.7bn in Jul-22, and it's def improved to $10bn, up 45%. But look at Affirm, up a whopping 77%. Why the delta? #2 Ramp vs. Intuit Ramp also took a ~28% haircut to valuation to $5.8bn in Aug-23, but it's continued to grow, yet private markets have it at $5.5bn, down 6%. Meanwhile, Intuit is up 29% during the same period. What's up? #3 Chime vs. SOFI Chime was last valued at $25bn at Series G in Aug-21, but private markets set it at $7bn, down 71%. Meanwhile, Sofi is hanging in there, down only 47% over the same period. Does not compute. #4 Plaid vs. Envestnet Plaid last raised at a buzzy $13bn in Apr-21 after the Visa/Plaid deal breakup but private markets see it at $3bn, down 78%. And then Envestnet / Yodlee, a Plaid alternative, over here down 30% over the same time period. What gives? #5 Stripe vs. Paypal* The only hope is Stripe. Last raised publicly at a $50bn in Mar-23. Now, according to private markets, it's worth $65bn, up 30%. Starting from the same period, Paypal is down ~16% *Folks often use Adyen but geo risk makes comparison noisy. I know there's a lot of diff dynamics here including differences in info sharing, lower liquidity in private markets and pre-IPO discounting, but the deltas in comparable comp valuation are big enough to make me wonder. When do we think private markets will rationalize?
Toby Steinberg
5mo
1) There could still be nerves about the current tech rally, eg if people aren’t sure it will last and so private investors aren’t feeling as bullish 2) Public markets come with liquidity which makes them more responsive and supposedly should carry a premium (although that hasn’t been the case much in the last decade!) 3) Some of these comparisons aren’t like for like because of the different drops and rises. Eg Affirm may look like it’s rallied really well vs Klarna but that’s partly because it dipped so low - around 95%. It’s still 75% off its peak, down on IPO and most fundamentally valued at a similar amount to Klarna’s current valuation. 4) following on from this, in general private vals didn’t reset as hard as public ones partly because of the different dynamics/investor loyalty/timeframe of a VC investment. If the fall wasn’t as sharp, the rise won’t be either. 5) Can you name a public market fintech that is up on its 2021 high? We will probably see late stage fintech vals rise significantly again if/when individual private companies perform exceptionally well on revenue and profitability AND there are several months of public companies not just surging from their crater lows but rivalling their highs.
Caleb Matheny
5mo
One other factor: The pref stack of the private co’s is a big factor pulling down or suppressing the value of the private co common. Creates a drag on the common stock value of the private co’s vs the common stock of the public co’s. Those huge underwater pref stacks are going to drag on the valuations that these companies get for their common stock in secondary markets until the pref stack gets recapped or converted in an exit.
TOMEK
5mo
Interesting perspective on the dichotomy between public and private fintech valuations – the role of secondary markets in price discovery is certainly an intriguing aspect of the current financial landscape.
Jesse Podell
5mo
Times like these I send the bat signal to Shriram Bhashyam
Strategic Finance at Chime | ex-Blackstone
5moI'd consider that information asymmetry is a key factor. Public companies have split into winners and losers based on their performance since '21, whereas as a private investor into secondaries, you have no updated financial information or signals other than any speculative news articles - that makes it hard to underwrite anything other than a very conservative case.