Looking Back at the Fintech IPOs of 2021
2021 has been a seminal year for the fintech ecosystem as a large wave of companies debuted as public companies. For a long time, “How will these companies ultimately be valued in the public market?” and ”What are the metrics that public market investors will look for?” were looming questions for both founders and investors alike. There weren’t many market comps to look to for answers besides traditional fintech incumbents and high-growth SaaS.
As someone who started my career in the public markets, I’ve grappled with this question since moving over to the private markets and spending time looking at fintech startups. Now, after years of uncertainty, we’ve had the largest wave of fintech IPOs in the history of the industry.
As we come up on the end of 2021, I took a look back at some of the major fintech IPOs of the year and how they have performed relative to the market. Going into 2022, this has implications for both how late-stage private investors think about valuations and what the next year may bring for many other private fintech companies on the precipice of making the leap.
Infrastructure / B2B Software
While we have a little longer to wait for companies like Plaid, Stripe, and Checkout to hit the public markets, the IPOs from this year are good proxies for public investor appetite. Despite trading down from prices at IPO, early indications from the performance of Marqeta and Toast suggest that public market investors are valuing these companies relatively in line with traditional high-growth software companies. These companies trade at 9–16x on an EV/NTM Revenue basis which takes into account a lower gross margin profile than a traditional software business. Normalized to a EV / ‘22 GP basis, they trade at 28–40x, which is in-line with valuations of high-growth software peers.
Other companies in this bucket are more heavily impacted by broader market factors such as anticipated industry tailwinds / headwinds. Blend’s multiple is depressed due to investor concerns around the impact of rising interest rates on the broader mortgage market while enthusiasm around the greenfield opportunities in emerging markets and cross-border ecommerce have bolstered dLocal and Global-E respectively.
Consumer
There isn’t a cohesive narrative around how D2C fintech companies have performed with more idiosyncrasies around individual company stories. The markets have rewarded companies like Affirm off positive partnership momentum with companies like Amazon and an upside opportunity to challenge the incumbent card networks. Increased regulatory scrutiny combined with high volatility in the crypto and equity markets have weighed on Robinhood and Coinbase. Overall, it appears that for the right story, public markets can be comfortable with business models even with significant balance sheets, and are more focused on factors impacting out year growth potential.
Next year, we’ll start to see how traditional neobanking models fare as Acorns, Dave, and Aspiration look to complete their respective SPAC mergers. All eyes are also on Chime as a likely 2022 IPO candidate. The fintech venture community has debated whether these will ultimately be valued like traditional banks — as a multiple of book value — or like consumer internet companies. Next year we should finally have some answers.
Insuretech
While the jury is still out on neobanks, the message on insuretech disruptors is clear. These companies have traded more in-line with traditional carriers than software and internet stocks. They’ve faced higher scrutiny on risk capacity, loss ratios, and have been rewarded less for strong top-line growth. Insurance is a business model that benefits from scale, diversification of book, and refinement of underwriting models. As a result, it appears that when evaluating young upstarts, concerns around their relatively small scale and shorter operating history are weighing on prices.
Zooming Out
It’s important to also consider the broader context of how the market has performed generally for fintech companies.
Looking at an index of public fintech stocks that have been publicly traded for a longer time shows the volatility across the category over the last two years. This bucket is comprised of Visa, Mastercard, Paypal, Square, Bill.com, Adyen, Shopify, and Lightspeed. Median EV / NTM Revenue multiples peaked at 25x at the beginning of the year and have contracted 38% to hover around 15.6x with much of the drawdown coming in the most recent quarter.
Another way to slice this data is by sub-categories. To help normalize for differences in business models across categories, I looked at EV / ‘22 GP multiples.
The comp set for each category is as follows:
- Insuretech: Root, Lemonade, Hippo, Bright Health, Oscar Health
- Consumer Fintech: Coinbase, Robinhood, Moneylion, SoFi
- Card Networks: Visa, Mastercard
- Remittance: Flywire, Wise, Remitly
- Point of Sale: Square, Lightspeed, Olo, Toast
- Online Payments: Paypal, Adyen, Shopify, dLocal, Global-E, Affirm
This shows that there is significant variance across different sub-categories of fintech. Public market investors have been prescribing a premium to payments companies, particularly vertical software companies with embedded payments processing and online payments companies benefitting from the accelerated adoption of ecommerce. On the other hand, categories that rely on digital customer acquisition and carry significant balance sheets like insuretech and consumer fintech trade lower.
So What?
The majority of the fintech IPOs of 2021 are trading at discounts to initial IPO prices. Looking at EV / NTM Revenue multiples suggest that few, if any, are commanding the types of valuations we see in the private markets.
While each company has their individual story, there’s a few conclusions to draw from the data:
- Not all fintechs are treated equally even within a category. Investors seem to reward high upside potential businesses like Affirm that have strong momentum and the potential to become a new payments player.
- There are large variances across sub-categories in fintech in terms of the valuations that public investors assign
- Top-line growth at all cost is not being rewarded. Investors are looking for sustainable growth and unit economics. For example, Toast has impressed investors with strong growth and solid unit economics, and commands one of the higher multiples of this group — growing 77% yoy in Q3’21 and <15 month payback period with 110%+ annual NRR
- Market timing is a big factor. Many of these companies debuted in a hot market with peak valuations. High growth stocks have broadly sold-off in recent months, with multiples contracting from the peaks. While it’s hard to time the markets, it’s important to recognize this has been an overhang that extends beyond fintech.
As the number of fintechs in the public markets grows, they provide valuation insights — for founders and VCs alike — into the types of business models and metrics that garner support from public investors. This can inform the categories and spaces where new innovators decide to spend their time and where early stage funding flows. I look forward to seeing what 2022 brings in how these public fintechs continue to evolve and grow as their stories impact the fintech ecosystem at large.
Note: Market data cited in this piece are as of market close 12/14/21. Sincerest thanks to James Ho for all your contributions and comments!
