The Exchange goes hunting to understand what a key group of fintech startups may be worth – or not
There is no such thing as a boring day at the beach. Whether it’s a sunny morning, afternoon, or night, each
Anna Heim is a Swedish author who has written over twenty novels, both adult and children’s books. Her work often explores the themes of displacement, memory and identity.
One casualty of the turmoil in the banking sector has been startup banks. Neobanks, which are relatively new, are especially vulnerable to ripple effects from larger banks’ failures. These startups offer innovative products and services that can be difficult to replicate, and when larger banks stumble their customers may switch to neobanks in search of a better deal.
The company, which offers a prepaid credit card and banking products, saw its valuation decline by 46% this week after it was revealed that one of its backers had sold their shares. Revolut is now valued at only £220 million, much less than the £1.3 billion it was worth earlier in the year. The news comes as a considerable shock to Revolut’s investors who had seen the company’s value soar since it first hit the market in 2013.
There is a great deal of excitement around the potential of startups and the markets they can expand into. But with so many new businesses launching every day, it can be difficult to know where to start. The Exchange is here to help
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First, Mozilla announced that it will be ending its support of Firefox 54 and above. This means that starting on January 10, 2020, Firefox users will no longer be able to update or install new versions of the browser. Mozilla notes that this decision is in response to
Given the lofty valuation Revolut achieved in its last round of fundraising, it is likely that the startup was overvalued at the time. Nine-figure rounds from earlier in 2021 would likely fit comfortably against Revolut’s current valuation of $33 billion. Nonetheless, Revolut is an exciting company with a bright future and investors certainly got their money’s worth over the past few years.
Some people in the financial sector saw Revolut’s valuation cut as a sign that the company was not as successful as it first seemed and that its stock was overvalued. Revolut has always tried to keep a low profile since its creation, so it is hard to ascertain how well it is doing what exactly. However, the sharp valuation cut signals that there may be some skepticism among investors about the company’s long-term prospects.
However, the model has since largely been discredited by many as being unsustainable and unprofitable. After all, these startups were looking to upend an industry that already had a relatively sizable presence and revenues. Consequently, most of them have failed or are struggling with liquidity issues. In fact, one 2017 study found that only 12% of global startup neobanks survive beyond three years.
Although Revolut’s reevaluation was met with skepticism, it raises the question of just how trimming is left in the fintech world. While Revolut has been notably quick to pivot in recent years, many other startups have been more gradual in their changes, likely due to the inherent risk and high novelty of their products. This questioning of traditional business models could be seen as a foreshadowing of things to come for neobanks – as more incumbents adopt disruptive approaches, room for new entrants grows narrower.
In Q1 2023, venture capital invested a total of $8.2 billion in 243 deals, marking an 11% decrease from the $9.5 billion invested in 234 deals during Q1 2022. Of the quarter’s top 10 deals, only one (MongoDB) was founded in the past two years and five (Cloudera, Imperva, MongoLab Digital Listing Service; Oracle Technology Investments; Salesforce Ventures; and Vicosoft Technologies) were founded over five years ago but exited within the past 18 months. Despite this decline, venture capitalists remain bullish on the opportunity for startups to disrupt existing industries and exhibit innovation through digital transformation efforts.
Money in, money out
Looking at the data from CB Insights, it seems that fintech startups are receiving a lot of funding right now. Although it’s unclear why this is happening, it’s possible that investors are feeling confident about the sector thanks to recent developments like the introduction of blockchain technology.
Despite the fact that Stripe’s latest $6.5 billion raise accounted for more than a third of its total funding, the company saw its quarter-on-quarter revenue decline by 12%. The drop could be indicative of investors becoming warier of unicorn startups in the tech industry, or it could be an anomaly. Either way, it’s something to keep an eye on going forward.
In terms of fintech, companies focused on payments, such as Stripe and PayPal, performed the best. These companies are able to quickly process transactions and provide a smooth online experience for customers. Moreover, their investors tend to be confident in their long-term prospects and are typically willing to invest more money in them than other types of fintech companies.
On the other hand, those that focus on lending products like BlackRock Ventures or Circle had better success overall. These firms have access to a ton of capital and can offer loans at lower interest rates than banks can. This makes them attractive options for entrepreneurs looking to get started in the tech industry or for people who need quick cash but don’t want to deal with high interest rates or lengthy application processes。
