Let’s face it, 2022 has been rough for fintech… really rough. It’s not the end of the world (for everyone at least) but silver linings are hard to come by.
Crypto might be the headline stealer but there have been a number of developments industry wide. Here’s some of the big takeaways from the year:
SBF and FTX TKO Crypto
They say death comes in threes. We’ve seen the death of one of the largest crypto marketplaces and the career suicide of the “next Warren Buffet,” Sam Bankman Fried. Now many are wondering if the crypto industry at large is casualty number 3.
Just in case you missed the biggest financial horror story of the past decade, it seems that FTX gave Alameda Research, a crypto hedge fund within the FTX group, free rein to spend customer funds on risky investments.
Bankman Fried is accused of lying to investors and funneling hundreds of millions into luxury Bahaman offices and political donations. When those risky investments resulted in zilch, the company imploded.
The story is almost too wild to be believed. A saga of siphoning, (alleged) sex, boardgames and stimulants. The new CEO, who also happened to work on damage control for Enron in 2001, testified this month saying, “never in my career have I seen such an utter failure of corporate controls at every level of an organization.”
Layoffs, layoffs, layoffs
Wherever you look, you’ll see fintech firms making cuts, crypto especially. In San Francisco, industry stalwarts Coinbase cut 18% of their staff in the summer while rivals Kraken cut 30% of staff at the start of December. Australian firm Swyftx and Chinese firm Bybit also ejected staff before year-end.
It’s not just crypto, however. One of the more recent fintechs to cut is B2B software provider Plaid. It cut 20% of its staff this month whilst BNPL firm Klarna laid off 10% of its workforce in the summer.
Banks are known for making big cuts. But with the team spirit, startup culture and camaraderie, the fintech cuts can’t help but feel more personal. Plaid for example said it was laying off “260 talented Plaids”; you would never expect to hear that Goldman Sachs were sacking their “Goldies.”
Valuations crash down to reality, hitting options
Hand in hand with the layoffs was a mass reduction in valuations. As the downturn in the market discourages investing, funding rounds have been lackluster and fintech firms have been hit… hard.
One of the most egregious examples was Klarna. The BNPL decacorn downgraded to a unicorn in July when it lost 85% of its value this year. That same month, digital bank Stripe also dropped its value by 28%.
It’s not just private firms either; publicly traded firms have seen stock prices hurtle downwards. At the time of writing, Coinbase stock has fallen over 85% year-on-year. In that same time frame, payments provider Adyen had a 35% decrease in stock price and financial services provider Robinhood has had stock price fall by 51%
Why such massive drops? Beyond the obvious lack of venture capital available, it seems like a case-by-case basis. Coinbase was hurt by crypto crashes whilst the cuts showcased inefficient leadership. Klarna meanwhile appeared to overvalue themselves and, as the inevitable regulation of the BNPL sector looms, their valuation becomes more realistic.
None of this is great for employees with stock in these companies, whose net worth is now considerably lower than it used to be. One grateful coinbase employee on Blind said “I’m just happy my stock resets every year” while another was critical, saying “Millions for VPs and execs. 🥜for ICs.”
The tough get going
Think every fintech has faltered in this difficult market? Think again. There are a number of companies doing exceedingly well in this cold financial climate.
While the biggest companies have had a reality check, it has been an opportune time for the smaller fintechs to stand out and get the funding that they need.
Not only that, but they have more ample opportunity to invest it in talent. Crypto headhunter Rob Paone says that “Bigger firms were sucking up all the talent and with them slowing hiring or having cuts, the smaller or medium-sized companies that missed out have an opportunity.”
Tracxn reports that 62 fintech companies achieved unicorn status in 2022. Not only that, the average funding a fintech received prior to obtaining that $1B valuation rose by $57m. This indicates that the new additions to the club have been steadier and more level-headed in their growth.
Recent unicorns in New York include NFT marketplace Magic Eden and cloud services company Alphasense. GoCardless and Paddle are among the standouts in London.
London is setting the pace for fintech jobs going into 2023, with a Dealroom report claiming that it’s the number one city for fintech VC funding in the world. This time last year the English capital was third behind New York and San Francisco but now it leads the way with £7.8B ($9.5B) raised since the start of the year.
What makes this even more impressive is the comparative lack of large fintechs to the other cities. San Francisco and New York have 50 and 39 unicorns respectively, while London has just 24.
This leans into the idea that funding for smaller firms may be more available. As investors are averting their eyes from cash cows and looking towards true innovation, the UK is setting itself apart.
Digital banks look to be a big winner in the UK market. London is of course home to industry leader Revolut but smaller banks still achieve success like Allica Bank who raised £100m this month. Even outside of London digital banks are raising respectable amounts, like Atom Bank in Durham who raised £75m in February and £30m in November.
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