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There’s a noticeable surge happening in the FinTech sector.
Following a prolonged slowdown in initial public offerings (IPOs) due to rising interest rates and adjusted valuations, several newer companies in online trading, banking, lending, and cryptocurrency are either entering the market or gearing up for a launch.
The upcoming test for Wall Street’s enthusiasm will be Thursday, as Chime prepares to start trading on the Nasdaq. With a price range set between $24 and $26 per share, that equates to a potential market cap of around $9.1 billion if priced in the middle. However, it’s worth noting that this figure is based on diluted shares. The IPO pricing is expected to be finalized in the latter part of Wednesday.
This marks a significant contrast to the valuation from Chime’s last funding round in 2021 when venture capitalists like Sequoia Capital pegged it at $25 billion amid a booming private tech market. At that time, the stock was thought to be valued at $69, as highlighted in Chime’s IPO filings. The current situation represents a broader industry shift as tech leaders and investors adapt to the new landscape.
David Golden, a seasoned fintech investor at Levolution Ventures, noted back in 2021 that funds were plentiful, stating, “stakes are basically free” and companies could sell shares without much pushback.
“We witnessed a reset in valuations,” Golden explained, having led JPMorgan Chase’s Tech Investment Banking. Now, with the market windows seemingly open again, Golden expressed a view of urgency, saying, “I basically said, ‘Look, we don’t really need the money, but I think it’s time.’”
A spokesperson from Chime chose not to comment.
There’s cause for optimism, too.
Last month, the trading app Etro debuted in the market with a notable 29% jump on its first day, though its stock hasn’t seen much movement since then. That same week, Mike Novogratz’s cryptocurrency company, Galaxy Digital, made its US market debut after joining the Uplist by TSX.
Then, the cryptocurrency company Round, with its impressive listing, underscored what seems to be a legitimate reopening for the fintech IPO market. Circle is trading above $118, boasting a market value of $26 billion after initially pricing at $31.
There are others preparing to enter as well. Klarna, known for its “Buy Now, Pay Later” service, filed a prospectus in March but later postponed its offering following significant market fluctuations. There haven’t been updates on its timeline, though reports from May indicated losses nearing $100 million for the quarter.
Meanwhile, Gemini, founded by the Winklevoss twins, disclosed last week that it has discreetly filed for an IPO. Similarly, Bullish, a crypto exchange founded with backing from Peter Thiel, has also reportedly entered the IPO process quietly, according to the Financial Times.
Launching a company like Chime today requires awareness of how dramatically the market has shifted over the past few years. The investors who took part in Chime’s 2021 funding round – including Sequoia, Softbank, and Tiger Global – will likely see their investments paid off as the company aims to buoy Wall Street.
Stripe, the leading US fintech by valuation, saw its value drop from a lofty $95 billion in 2021 to about $50 billion in 2023. Earlier this year, it nearly recovered to $91.5 billion in a tender offer for employees and shareholders. However, Stripe seems less inclined to rush to go public, likely due to its capacity to facilitate secondary market transactions.
“Acquisition currency”
Chime recently reported a 32% increase in revenue from the previous year, totaling $518.7 million, although net income declined from $15.9 million to $12.9 million.
“They believe they have sufficient backing to raise significant capital and gather the acquisition currency necessary to pursue other companies,” Golden commented.
Even if their valuation decreases, Chime’s IPO will offer substantial returns to previous investors, such as DST Global Capital and Crosslink Capital, the company’s largest outside backers.
Silicon Valley investors are eager for returns after an extended period of drought. The first-quarter venture exit values hit a record high since the fourth quarter of 2021, with almost 40% stemming from a single IPO – CoreWeave, an AI infrastructure provider.
“The sponsors and advisors are quite realistic,” noted Ryan Gilbert, a general partner at LaunchPad Capital, emphasizing that this will ensure the windows for IPOs remain open.
“I think we’ll see the IPO process complete and start trading without aggressively pricing it,” Gilbert added.
Chime has spent substantially to attract customers, which poses a significant challenge for smaller businesses without widespread brand recognition. According to its prospectus, Chime invested around $33 million over three years to promote its logo on the NBA’s Dallas Mavericks jerseys.
Chime now faces the task of effectively utilizing its marketing expenses and retaining customers while competing against established names like Square, PayPal, and Sophie.
While Chime isn’t a traditional bank, many of its offerings are centered around typical banking services and its primary revenue comes from interchange fees from debit and credit card transactions.
“It’s quite straightforward,” remarked Dan Dref, an analyst at Mizho. “It truly surprises me how intricate their business model is.”
The reception of both its business model and Chime’s narrative could considerably influence the broader fintech landscape.
“Chime might be viewed as a potential early indicator,” Golden noted. “If it performs well, I think we’ll see more acceptance in the following months,” he suggested.
“If it doesn’t go well, I suspect many will adopt a wait-and-see approach,” Golden added.
clock: IPOs reflect significant demand
