Possible Funding Thaw May Bring New Life to FinTech IPO Index

Call it the thaw after the FinTech funding winter.

Maybe.

And for the FinTech IPO Index, there may be some reason for cheer — perhaps this year.

Because if private capital is sanguine about the prospects of digital upstarts seeking to change financial services and valuations improve, retail and institutional investors may be moved to buy up the publicly-traded equities.

There may be more listings, too.

As detailed by S&P Global, deal making and funding seem pressured. The data shows that in the first quarter of this year, FinTechs globally engaged in 529 funding rounds worth $6.58 billion in the first quarter of 2024. That’s down 18%, as measured in the number of funding rounds, and down and 26% year on year as measured in dollar value.  

Where the Money’s Going 

But as measured sequentially, against the fourth quarter, FinTech funding value was flat, and the deal count grew 13%. As for the most notable gains, deals tied to banking tech logged $1.8 billion in funding and 72 deals, climbing from $1.7 billion and 62 deals last year. The payments segment remained pressured, as there were 127 rounds, representing $1.4 billion, down from 151 rounds and $3.5 billion in the year ago first quarter.

Commentary from S&P Global noted that AI-focused firms are drawing the most attention and activity, but the overall industry will see strong growth in the second half of the year.

The confidence may be bolstered by the mergers and acquisitions that have been taking shape recently. Consider, for example, Nuvei’s $6.3 billion go-private deal earlier this year, which came on the heels of Nuvei’s own $1.3 billion acquisition of Paya. 

And, as PYMNTS discussed a few weeks ago, mega-deals are coming back, capped by the $35 billion bid by Capital One to buy Discover Financial.   

As for the read across for the FinTech Index as tracked by PYMNTS: As spotlighted last week, the overall Index is up more than 4.6% year to date.

Taking a straight average of the holdings, the overall valuations are not cheap, where the price-to-earnings ratio on a trailing TTM basis is about 60x, and the price-to-sales ratio is about 12.8. But there are companies such as OneConnect and Doma that trade at less than 1x sales. Even with the go-private news, Nuvei traded at about 3x sales. The average market cap in our pantheon is about $158 million.

In other words, the valuations of many of these companies reflect some investor skepticism, but if deal-making and new public listings gain momentum, those valuations might improve. In one example, cash-back rewards platform Ibotta increased the size of its planned public listing.

Last week, the Walmart-backed company said it aimed to raise $472 million through an initial public offering — that tally is now $551 million in new paperwork filed with the Securities and Exchange Commission.