FinTech Cash Burn Totaled $12 Billion in 2022

Recently listed tech companies reportedly went through more than $12 billion in cash during 2022.

And as the Financial Times (FT) reported Sunday (March 5), many of these companies are now struggling to figure out how they can raise more money amid falling share prices. It’s a situation that highlights the trouble non-public companies face when trying to drum up capital.

After a mad dash for dealmaking in 2020 and 2021, companies are now faced with either having to slash costs, undergo costly capital raises or takeovers by bigger competitors or private equity groups, the FT noted.

“[Those companies] benefited from the very high valuations, but unless you’re really bucking the trend your stock is way down now. That can leave you kind of stuck,” Adam Fleisher, a capital markets partner at law firm Cleary Gottlieb, told the FT. “They have to figure out what is the least bad option until things turn around.”

Despite a shift towards profitability after last year’s market downturn, the FT says its analysis of recent filings show many companies still have a long road ahead of them.

According to the report, only 17 of the 91 newly listed tech companies that have reported results this year have shown a net profit, with cash-burning firms spending 37% of their initial public offering (IPO) proceeds last year.

The news comes after a week in which earnings reports led the companies monitored on PYMNTS’ FinTech IPO Index to a 2.7% loss.

Among them is Marqeta, which gave up 24% during a week in which investors focused on reports of slowing growth. Marqeta saw processing volumes rose 41% year over year to $47 billion, but management said there are some headwinds in the mix, projecting slower growth.

Venture capital companies, meanwhile, are having a harder time raising money, as PYMNTS noted recently, with funding in the last quarter of 2022 at its lowest point in almost a decade.

The downturn was fueled by the same factors that impacted tech startups in 2022: fewer sellers going public through IPOs, and stocks and valuations dropping as interest rates and inflation increased.

PYMNTS also recently examined the “sea change” happening in the VC fundraising space, as FinTech companies increasingly move away from a “growth-at-all-costs” mindset in favor of focusing on profitability.

However, as Balderton Capital’s Rob Moffat told PYMNTS late last month, focusing only on profitability may not be a winning tactic “in the business of growing great technology and software businesses.”

He said that some businesses can reach profitability early on, while others that need capital and suffer sustained losses can still become profitable.

Moffat argued companies in the second category shouldn’t be denied funding if they can meet important metrics like strong gross margins and client retention while having enough funds to repay sales costs within a year.

He said his U.K.-based firm will consider investing once those criteria are met and “we’re very confident that you have all of those pieces that can [help you] grow to profitability.”