To understand the current situation of technology companies and guide our actions in M&A and fundraising, we analyzed Nasdaq companies in the segment that has attracted the most venture capital investments in recent years: Fintech.
We see the Nasdaq fintech index down more than 33% between 12/31/21 and 6/16/22. However, this index includes shares of consolidated companies such as Visa, Mastercard, Equifax, Fiserv, among others.
When we look at a sample focusing on more innovative companies, we find very relevant drops ranging between 30% and 80% of the Market Cap, with interesting exceptions such as SoFi and Marqeta, proving that not everything was negative in fintech. It can soon be seen that we had a valuation bubble when even after losing 63% of its market value, PayPal was still valued at 3.1x revenue on 6/16.
As public markets adjust faster, we still do not see a comparable effect in Pitchbook and CB Insights reports, in addition to the decrease in invested volume and round size. But it is certain that the adjustments will be strong, with a reframing of conditions to the basic fundamentals of results, growth and valuation between investment rounds.
Overall, we are already seeing up to a 50% reduction in reviews. However, these findings are not necessarily negative: companies and founders with consistency, prepared to raise fewer resources and be more efficient, stand out and can occupy a good space, if they know how to handle tough layoffs, downrounds and prioritization decisions well. These perceptions of loss with today's adjustments may very well become irrelevant in the future.
With the large volume of capital available to invest from VC and PE funds, competition for capital will remain intense with many rounds in more innovative and defensive segments.