Fintech Startups Are in Serious Trouble And Here is Why

The fintech industry is a hotbed of innovation, but it’s also facing some major challenges that could bring the whole thing crashing down.

Innovative companies are popping up all over the place to offer new ways for people and businesses to manage their money. But as these companies grow, they’re starting to run into problems with things like regulations and security. The Fintech industry is in serious trouble.

Fintech probably grew the fastest in the last two years in terms of valuation, and may well be the farthest to fall.

The problem with fintech companies is that they’re not sustainable. They rely on venture capital to stay afloat, and once the money runs out, there’s no other way for them to make it.

Already fintech multiples plummeted faster, and harder, than the rest of the tech sector. A chart shown by Finerva shows that the peak of forwarding revenue multiples for fintech companies was in October 2021 when it hit near 25x. Now, it’s nosedived to below 5x.

As public fintech companies are seeing their market caps shrink, it’s going to be harder for private companies to justify their own rich valuations. The trickle-down from the public market’s reset hit extra hard this week. More fintech startups began to make cuts. Some might find themselves raising a down round. Of the 19 layoffs listed on Layoffs.FYI this week, nine were at financial companies.

Klarna told employees it would lay off 10% of its workforce via a video message this week. It was rumored that the company was going to try to raise its valuation from last summer’s $46 billion to $60 billion in February, but it’s now facing a potential valuation cut down to $30 billion.

Fast was the first to collapse, but now its rival Bolt has had to lay off hundreds. Its layoffs are a particularly nasty kind after many employees took out loans to exercise their stock options.

The lingering question is how long any of this will last. As they put it: The market was probably never as good as the overvalued 21x multiple but it’s probably not as bad as the 3x-4x seen today.

The one silver lining: Founders will be forced to build better businesses when the tailwinds are gone and people don’t just write a $100 million check because you say you’re a fintech company. “In the overheat of 2021, there was just money going after everything and founders didn’t have to learn what product-market fit felt like, Being a founder is about to get a lot harder, as Investors begin to take a second look at the whole Fintech bubble.

Summary:

The problem with fintech companies is that they’re not sustainable. They rely on venture capital to stay afloat, and once the money runs out, there’s no other way for them to make it.

the peak of forwarding revenue multiples for fintech companies was in October 2021 when it hit near 25x. Now, it’s nosedived to below 5x.

Klarna told employees it would lay off 10% of its workforce via a video message this week. It was rumored that the company was going to try to raise its valuation from last summer’s $46 billion to $60 billion in February, but it’s now facing a potential valuation cut down to $30 billion.

Fast was the first to collapse, but now its rival Bolt has had to lay off hundreds. Its layoffs are a particularly nasty kind after many employees took out loans to exercise their stock options.

Founders will be forced to build better businesses when the tailwinds are gone and people don’t just write a $100 million check because you say you’re a fintech company.