There is a lot of talk these days about the impact on fintech M&A in an era of rising interest rates and volatility.
The soaring prices of energy, food, labour, transportation, and agricultural products. The declining values of bigtech, unicorns, SPACs and stock markets; the layoffs in bigtech and the largest war in Europe since World War II.
However, according the The FinTech Herd report, there is just one problem – frankly they do not yet see the gloom reflected much in the performance, interest, or value of strong firms in our slice of the mid market tech and fintech world.
The report notes that that tech is not immune to market forces. But it does say that these impacts must be seen in context.
The first context is the amazing new tools that these firms are bringing to bear to solve real world problems. It is science fiction amazing.
Computing power has increased 1 trillion times since the 1960s and with quantum computing it is set to increase just as much again (two Nintendo consoles now have more power than the 1969 Apollo guidance computer that got Neil Armstrong to the moon”.
We are in the early innings for open AI, machine learning and robotic process automation, augmented and virtual reality, big data analytics, sensor technology, distributed blockchain ledgers, cloud storage, Web3 and more.
This leads to innovative products and services such as biometrics, cyber security, smart contracts, embedded autonomous and decentralised ledgers, exchanges and more – including of course ChatGP.
The second context is arithmetic.
The decrease in market value experienced by a lot of publicly listed tech firms doesn’t seem so bad in the context of the strong value increases that those same firms saw over the past few years.
The value drop for many unicorns and SPACS often were from sky high values that were due for a reset.
The tech layoffs, as painful as they are to many, should be evaluated in context. Amazon added 800,000 jobs since 2020-2021 – doubling their workforce. Now they are laying off 27,000.
Google added 52,000 jobs in the same two year period, now they’re shedding 12,000. Microsoft added 68,000 jobs over two years now they are laying off 10,599 of them.
It’s a lot, but most tech companies added far fewer we’re seeing that few mid market firms need to retrench.
The FinTech Market
Broad activity for financial technology opportunities slowed in 2022 and hit pause in Q1 2023 even though investors entrenched in the space consistently highlighted the continuous and increasing innovation within the fintech sector.
Private capital investment and full year deal volume was at an all time high in 2021, while continued enthusiasm for fintech opportunities was evidenced by the relatively comparable deal count in 2022.
2023 year to date is seeing green shoots- but not many.
Early stage fintechs tended to see more investor demand than those at a later stage in their revolution. This was a result of the investor universe needing to deploy long term capital in order to support key disruptors and innovators within the sector- regardless of the current market conditions.
The medium deal size across the fintech ecosystem since 2018 is at its highest in 2023 at $3.7 million which highlights continued support of earlier stage higher risk companies despite macro pullback from risk.
To read the full report CLICK HERE
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