Tokyo FinTech Digest #10

The major US indices managed to avoid an extension of their seven and eight weeks losing streaks, turning in their best performance since November 2020, while bitcoin has not participated in the week-ending run, and hovers under USD 29,000 at the time of this writing. Some pundits will take the opportunity to call a bottom, others will predict further doom, given the almost certain 50 basis point raises the Fed is communicating to the market for June and July. We will simply stick with seasoned investor Howard Marks, who stated in his latest letter, published this week:

I want to mention up front that this memo has nothing to do with assessing the markets’ likely directions from here. Bullish behavior came out of the pandemic-related bottom of March 2020; since then, significant problems have developed inside the economy (inflation) and outside (Ukraine); and there’s been a significant correction. No one, including me, knows what the sum of those things implies for the future.

That significant correction that Mr. Marks mentions has not hit any sector harder than FinTech. For the revenue multiple of the universe of publicly listed FinTech companies has declined from a bubbly 25x in October 2021, leading all sectors, to around 4x in early May 2022, the cheapest except for Consumer/Internet firms. That is quite a contraction, and arguably, there are bargains to be had — Brazilian neobank Nu, with a strong path to profitability, is available for just under half its December 2021 IPO price, and about a third of its first day close, for example (see “The neobank you always wanted to be”).

A similar picture is presented by Goldman’s historical comparison of growth and value stocks, with the gap in P/E ratio between the two significantly contracting since the peak in November 2021, ending a path of divergence that started after the Global Financial Crisis.

In the venture capital world, it is not too difficult to predict that the a large part of the 2020 and 2021 vintages will struggle to meet their performance targets, but at the same time, there is a lot of dry powder across the industry that will now be deployed at much more reasonable valuations. Also, firms like a16z apparently have no trouble raising USD 4.5bn for what can only be termed a “distressed crypto fund”. For some, there is blood in the streets, for others, there is opportunity.

Since we are on the topic of investments and valuations already, let us keep that as the focus for this week. The smart people at Coral Capital put out a well-researched report this week, identifying 41 “hidden unicorns” in Japan.

As the argument goes, startups stay private for a much shorter period in Japan, and an IPO essentially substitutes for a Series B funding round. So while there are 10 startups still privately held and recognized as “unicorns” (although the list might be open to challenges given above mentioned valuation crunch), there are 41 startups that IPOed over the past 12 years, and mostly have grown to unicorn size while a public company. Please have a read through the full report.

Finally, here are three deals we found noteworthy this week:

• Hong Kong-based climate tech startup Allinfra (Team Allinfra) has raised USD 6m in Series A funding led by Japan’s biggest brokerage firm, Nomura, to expand its software that helps businesses be more environmentally friendly.
• Tokai Tokyo Financial Holdings, the Development Bank of Japan, and JIC Venture Growth Investments participate in ADDX’s Series B; the Singapore-based firm ADDX is regulated by the Monetary Authority of Singapore (MAS) as a digital securities exchange, providing a private capital markets platform.
• SBI Holdings invests in Digital Asset, the creators of DAML, a platform for building and running sophisticated multiparty applications, and plans to establish a joint venture for the development of the platform across the Japanese and Asian markets.

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