For FinTechs, Raising Capital Is Like It’s 2017

FinTechs remain in a tight spot, as far as fundraising goes.

The third quarter of this year saw investment in private FinTechs fall 46% compared to the same period in 2022, the Wall Street Journal reported Thursday (Nov. 9), citing data from CB Insights. The number of deals, the report added, dropped to 2017 levels.

As for the companies that are raising money, they’re doing so at reduced valuations. The report used the example of credit card startup Ramp. It raised $300 million in August, valuing the company at $5.8 million. A funding round in 2022 placed its worth at $8.1 billion.

The report noted that this landscape has led some FinTechs to sell off assets or cut jobs to help reduce costs.

For example, PayPal in September agreed to sell returns logistics firm Happy Returns to UPS for $465 million, just two years after acquiring it. 

“Simply put, our cost base remains too high,” Chief Executive Officer Alex Chriss said on a call with analysts.

Block, meanwhile, has plans to shrink its employee numbers from 13,000 down to 12,000 by the end of the year. As PYMNTS reported last week, recent earnings from both companies show the tight lending environment facing companies that loan to businesses.

The WSJ added that some companies have avoided the downward trend, pointing to SoFi Technologies, whose stock is up more than 59% this year. The company also anticipates reaching its first profitable quarter soon. 

Still, the report said, CEO Anthony Noto told analysts during an earnings call that SoFi was “still losing quite a bit of money” on its investing and credit-card offerings. The stock rose soon after its earnings, but lost most of its gains later in the day.

PYMNTS examined the pressures facing the FinTech sector earlier this year in the report “FinTechs Look to M&A for Profitability as Economic Shake-Up Continues.”

The sector hit a roadblock last year as “the forces of pandemic-fueled transformation and economic stimulus began to wane,” the report said.

The effect was seen strongly in the buy now, pay later (BNPL) sector, culminating in major losses for important players such as Affirm, Klarna and Zip. 

“Klarna, for example, valued at $45 billion at its zenith in 2021 as the world’s second-most valuable FinTech after Stripe, dropped in valuation the following year to a mere $6.7 billion — an 85% tumble,” the report said.

The situation isn’t much better in 2023, as rising interest rates, high inflation and reduced consumer spending “have put pressure on FinTech companies’ trailblazing models, requiring some painful adjustments,” PYMNTS wrote.