- Venture investor F-Prime launched an index that tracks shares of public fintech names.
- Public fintechs beat the broader market over the past three years, but underperformed in 2021.
- As the public market remains uncertain for fintechs, PE firms might look to make more investments.
If fintechs were in the business of just raising cash, last year was the best one any of them could have hoped for.
In both the private markets, where venture and growth investors hold sway, and the public markets, where retail traders have become increasingly active, 2021 saw a massive transfer of capital to a range of fintechs across banking, payments, investing, and cloud tech.
Fintechs that went public last year raised a combined $393 billion in fresh capital, according to data compiled by venture investor F-Prime Capital. Eight of the 10 largest public debuts among fintechs in history, from Coinbase’s May direct listing to Robinhood’s July IPO, occurred in 2021.
However, those lofty valuations have been difficult to maintain in the public market, as several fintechs saw significant decreases in their
following their debuts.
An index of more than 50 publicly-traded
tracked by F-Prime is down 37.7% this year through January 28. By comparison, the S&P 500 is down 7.6% while the tech-heavy Nasdaq Composite is down 13% during the same time period.
F-Prime Capital, which has invested in names like Vestwell, Toast, and Flywire, launched the Fintech Index on Tuesday. With an average market cap of $13.5 billion dollars, companies included range from massive household names like PayPal to smaller, finance-adjacent ones like Clover Health.
The difficult public environment for fintechs could mean investing opportunities for private-equity firms, especially those that have begun to build out practices focused on the space, according to David Jegen, managing partner of F-Prime Capital’s tech fund.
“They will have an opportunity to buy companies that might have gone public — but were out of reach of PE — that will now come back in as viable exit options,” Jegen told Insider.
“Things have corrected in the first quarter here, but even in the correction, it’s an opportunity to see how investors are becoming familiar and starting to differentiate across sectors, across ways they went public,” he added.
Fintechs might reconsider going public in 2022
Despite 77 fintechs going public last year across the world, the appeal of doing so is cooling off thanks to the lackluster performance many faced.
Fintechs opting to stay private longer presents a deal environment that could favor major private-equity buyout firms, Jegen said.
Thoma Bravo, which has $91 billion in assets under management and took digital-payments company Bottomline Technologies private last year, and Silver Lake, a firm with more than $90 billion in AUM, are good examples of this.
Both firms built out their tech teams 10 years ago at a time when tech buyouts weren’t fathomable, Jegen said. The two firms are now primed for the potential buyout and growth investment opportunities to come.
Top PE firms that have a broader, more general investment focus have made financial technology somewhat of a linchpin of their business. One reason is the pervasiveness of fintech in various industries outside of financial services.
As a subsector, fintech encompasses everything from traditional finance to retail to healthcare and other areas, meaning that PE firms can collaborate across coverage areas and grow their deal teams at the junior and senior level.
PE also has a hefty amount of available capital, or so-called dry powder, from record fundraisings over the past three years. Globally, dry powder was $1.32 trillion, as of September 2021, according to a Preqin report on alternatives.
In January, two fintech companies were acquired by PE. Deposify, a deposit management software company, was bought by an unnamed US PE firm, and Aurora Payments, a payment-processing company, was bought by New York-based Corsair Capital.
A competitive M&A market lies ahead
To be sure, on a time horizon longer than the past year, publicly-listed fintech names have bested the broader markets. Since 2019, the Fintech Index (104.4%) beat both the S&P 500 (63.9%) and Nasdaq Composite (89.1%).
Though the environment will present new chances for PE, buyout teams stand to still face competition from other fintech names and banks that are becoming increasingly acquisitive in their own right.
Jegen highlighted JPMorgan’s 2021 acquisition of London-based investment manager Nutmeg to bolster the digital launch of Chase services in the UK. The bank has made 10 other investments in fintechs since 2020. This January, meanwhile, UBS announced a $1.4 billion bid for
And Jegen further expects to see newly public fintech companies, like SoFi and MoneyLion, using acquisitions and mergers to add on new services as they continue to build out banking and lending products.
Now able to leverage their stock as well as cash, “they have have a public currency for acquisition, still at pretty good multiples,” Jegen said.