Fintech Valuations Take a Hit: Stripe's Valuation Drops to $50 Billion

Good morning Rain Makers,

Wishing you a great weekend ahead, and I hope you enjoy this newsletter as much as I enjoyed this tweet:

-Alejandro

• 📉 Stripe's valuation drops to $50 billion, but the company is expanding beyond payments and plans to integrate OpenAI's GPT-4 AI model, showing large companies' interest in embedding AI in their product offerings.

• 👀 HSBC acquires Silicon Valley Bank UK for £1, a move that could potentially tilt technology markets further in favor of bigger platform companies with strong balance sheets while making life harder for startups.

• 😐 VCs mark down the value of investments by $23 billion, while TTV Capital closes its largest fund yet; read on to discover the current state of the fintech industry.

• 💸 +7 Funding Rounds

Fintech Valuations Take a Hit: Stripe Valuation Drops to $50 Billion

• Stripe has raised $6.5 billion at a $50 billion valuation, which is a significant drop from its previous valuation of $74 billion.

• The company reported that the money raised is not to run its business, but rather to provide liquidity to current and former employees, as well as address employee withholding tax obligations.

• If you think the drop in valuation is bad news for Stripe, know that they are not alone. The valuations of other tech unicorns in the payments field are taking the elevator down as they compete fiercely in a much tougher market for fintechs.

• In the next months, falling valuations in the industry are likely to become a new normal due to factors such as the normalisation of e-commerce and SME spending (online spending may slow down), fierce competition, mixed network effects (local oligopolies being stronger), labour-intensive investments and IT technical debt.

Stripe’s Next Moves

• Over time, Stripe has expanded beyond payments to services like tax, billing, issuing, and Banking as a Service.

• More than a hundred businesses now handle more than $1 billion on Stripe every year, and the company has effectively morphed into an e-commerce enabler and a one-stop-shop for all types of neo-banking and digital transaction management.

• Now, the company plans to integrate OpenAI's GPT-4 AI model into its products and allow its customers to make queries about their business analytics using natural language instead of needing to write database queries.

• This move represents one of the first known integrations of OpenAI's new technology, showing large companies' interest in embedding AI in their product offerings.

HSBC Acquires Silicon Valley Bank UK for £1: What This Means for Startups

In case you missed the news, HSBC offered £1 for the acquisition of Silicon Valley Bank UK. Yes, £1.

Why?

• Simple. The deal offers HSBC the opportunity to win a host of start-up clients.

• This is a strategic fit for the bank, given its desire to grow its commercial banking business in high-growth industries.

• HSBC also believes that the entrepreneurs behind the many startups could make clients of its private banking arm, while later-stage companies considering an initial public offering could cross over to the capital markets team.

• The only challenge now for HSBC is that to make the deal work, it will have to ensure there is no further deposit flight and convince a tech-savvy client base that a high street lender can provide for their needs.

Is this good for startups?

• Only the future will tell.

• The loss of Silicon Valley Bank is likely to make life harder for start-ups and tilt technology markets further in favor of bigger platform companies with strong balance sheets.

• Venture capital firms are increasingly providing active support to their portfolio companies on how to manage and invest their funds. They are advising their companies to balance their reserves between traditional lenders and digital-only "neobanks" that offer fast access to capital.

• These actions mark the start of a new era for tech start-ups, as they must now confront the absence of a single institution that had aimed to meet all of their financing requirements.

• Yes, startups diversifying their banking relationships is prudent, but operating across multiple banks could also make things more difficult.

  • Logistics: For one, startups tend to use cash rapidly to reinvest in the business, it isn’t just money sitting idle in a bank account. Having more accounts means more logistical headaches.

  • Financing Options: Larger banks operate with a different mindset and, traditionally, have stricter requirements when providing loans. SVB had become a trusted partner for startups that need to borrow without going through a lengthy vetting process. With that relationship gone, there is a potential future where there will be fewer loans available for startups.

  • Customer Service: Sure, big Banks such as Wells Fargo and JPMorgan have their own specialist teams of bankers in Silicon Valley to work specifically with start-ups, but many investors believe their services simply do not compete with that of a bank that had spent 40 years honing a business model geared to start-ups.

What else is going on behind the scenes?

• SVB Financial Group has filed for Chapter 11 bankruptcy to reorganize and evaluate strategic alternatives for its assets and investments.

• SVB Securities (regulated broker-dealer) and SVB Capital (venture capital and private credit fund platform) are not included in the Chapter 11 filing and continue to operate in the ordinary course.

• SVB Financial Group is no longer affiliated with Silicon Valley Bank, N.A. or the bank’s private banking and wealth management business, SVB Private.

• The bank's successor, Silicon Valley Bridge Bank, N.A., operates under the jurisdiction of the FDIC and is also not included in the Chapter 11 filing.

Up and Down: VCs Slash Valuations, while TTV Capital Closes Its Largest Fund Yet

• the bad first: Tiger Global and SoftBank have marked down the value of investments within their funds. It is reported that these write downs amount to a $23 billion. Yikes.

• Surprising? Not that much. Only three out of nearly four dozen FinTech names that have gone public through the past few years have posted positive returns since their public listings.

• The failures of banks like Signature and Silicon Valley Bank don’t help and mean that the near-term path to tech startup funding is rocky.

• Some good: TTV Capital has closed its sixth fund at $250 million, the largest since the firm was founded over two decades ago.

• To its credit, TTV is one of the first and only early-stage fintech funds focused exclusively investing in companies in the financial services ecosystem.

• The company has amassed a portfolio of over 100 financial technology companies, and seven of those have reached unicorn status.

• In 2022 alone, they made 18 investments in early-stage fintech companies, with an average initial check size of $2 million to $7 million.

• Berlin-based fintech company Moonfare has laid off more than 10% of its full-time employees in 2022 compared to its peak. Founder Steffen Pauls has been focused on expansion, but the company has seen doubts about its business model, and outside investors may be reluctant. Moonfare currently employs 196 people and has announced plans to continue targeted hiring in 2023 to drive growth and strategic initiatives. (Read More)

• Parker, a startup offering a corporate credit card for e-commerce businesses, has emerged from stealth and had previously raised has raised $157 million in equity and debt funding. The company's credit limits are 10 to 20 times higher than traditional business credit cards. Parker's revenue comes from interchange and transaction fees, and since its launch, has surpassed $300 million in transaction volume. (Read More)

• Nigeria-based fintech company Flutterwave has been granted two electronic money issuer and remittance licences by the National Bank of Rwanda. These will allow it to facilitate transactions and offer cash deposits and withdrawals, electronic funds transfers and inbound and outbound remittances. Flutterwave plans to use its global reach and growth in emerging markets to provide micro, small and medium enterprises in Rwanda with financial tools to stimulate the economy. (Read More)

• Nigerian digital bank FairMoney has acquired PayForce, a merchant payment services provider for small businesses, in a cash-and-stock deal worth between $15m and $20m. The acquisition will strengthen FairMoney's financial services proposition to merchants and provide incentives for PayForce-acquired merchants who use FairMoney as their primary bank. (Read More)

• Stripe | $6.5b Series I: developer-oriented commerce company that helps small and large companies accept web and mobile payments (link)

• Clara | $90m Debt: leading B2B LatAm business credit card, payment solution, and expense tracking platform (link)

• Tamara | $50m Debt: buy-now-pay-later fintech (link)

• Wingspan | $14m Series A: platform for freelancers to manage income, benefits, and taxes (link)

• Payabli | $8m Series A: payment infrastructure and monetization platform (link)

• OnePipe | $4.8m: APIs that enable banks to partner with modern digital services and fintech (link)

• Sav | $0.75m Pre-Seed: goal based savings platform that helps you achieve your life goals faster (link)