Which FinTech firms get the highest valuations?

Spoiler alert: it’s not all about valuations

Not all FinTech companies have been created equal. While publicly traded companies in the space have outperformed the overall market (and more decisively so since 2006), companies that focus on financial data and analytics have been much better off when compared to other FinTech firms.

share price performance graph

More interestingly, and in spite of COVID, valuations have continued to expand so that Payment Tech and Capital Markets Tech companies have seen the strongest improvement, bridging the gap with financial data & analytics firms.

valuations graph

So the question comes “what do I do to increase my valuation”?

There is no secret sauce but here are a couple of points:
• Larger is better than smaller
• More growth and more profits will support values
• Buyers buy the future, and use the past as a proxy for it

“Thanks but we all knew that already!” True but what these three statements do should help prioritize: since larger is better than smaller, focus on growth. These days buyers reward growth better than profits. That is, if 1% more growth in revenue costs you less than 1% in margins, you should consider investing in such project(s).

Then if you have some time before exit, beyond sales and sales visibility, consider creating further IP, whether in the form of patents or workflows or processes. Keep things tidy and organized, think about older contracts (employees, vendors, clients, …) that would need to be amended, cancelled or renegotiated or are just missing.

It’s not all about valuation! As rationale and competitive human beings we look at what is measurable and one thing that is measurable when selling or raising capital for your business is valuation. But that’s not all, there are other important factors to consider. These include structure (for instance, are earnouts controllable and achievable and how much of the value is shifted towards later?) and,  in the case of a capital raise, terms like participation and preference together with some more intangible factors like employees, vision, etc. These all come into consideration when we evaluate offers and negotiate the final agreement.

It’s not all white and black and certainly not all about valuations. If you are thinking about selling or raising capital for your business and would like to have a discussion, we would be happy to inform you further.

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