Investor sentiment on private Fintech mirrors the public market
September 21, 2022

Investor sentiment on private Fintech mirrors the public market

Forge Team
Key Takeaways
  • FinTech private market investors closely tracked their public peers through the peaks and troughs of 2021 and 2022
  • Market indicators on Forge reflect shifting investor sentiment and valuation assumptions into and out of the FinTech sector
  • An examination of buy/sell interest on the Forge platform provides further insights into underlying pricing sentiment that drove overall sector movement

The private market’s infatuation with FinTech

FinTech powers our increasingly borderless, cashless and efficient world. As FinTech investing became an increasingly important part of an average investor’s portfolio over the past 5 years, capital flowed heavily into both public and private companies in the sector. Public FinTech companies like PayPal and Upstart saw their stock prices soar in recent years, while private companies such as BlockFi and Opensea were still able to raise large funding rounds at notable valuation step-ups the first half of 2022 even as the broader markets started to turn.

But after the turn of 2022, the sector’s performance is now more in line with the broader market. Block, Coinbase, and Affirm all had notable contractions in the public market while Klarna, Stripe, and others cut valuations on the private side.

To take a closer look at how FinTech performed in the private market, we use Forge Data to explore bid/ask pricing metrics via Indications of Interest (IOIs) on Forge’s trading platform. The IOI dataset enables investors to view real-time private market sentiment and pricing indications by aggregating data points across buyers and sellers on the Forge platform.

The shift in market sentiment across the board

Looking across all new IOIs submitted on Forge Markets in Q2, both bid and ask prices dropped below previous primary funding round marks. These prices stand in contrast to those observed in 2021, where both bids and asks were at a premium relative to the last funding round.

It is also worth noting that the recent trend indicates a sharper and more pronounced drop in bid prices – which we believe suggests that buyers are more aggressive in adjusting their price expectations in the current environment.

Buy/Sell Interest pricing indicationsBuy/Sell Interest pricing indications

A closer look at the FinTech sector

In early 2021, bid and ask prices within the FinTech sector skyrocketed. In March 2021, bids and asks were aligned at 150% premium to last primary round. Said a different way, both buyers and sellers were willing to transact in FinTech names at prices that were 150% greater than the valuation at which companies last raised primary capital.

Although the sharp fall in bids by mid-2021 was a preview of things to come, ask prices remained highly elevated. By June 2021, bids stood only 10% above the previous funding round, while asks remained at an average of 146% premium. Ask prices finally started to come down in late 2021 to better align with buyer expectations.

While there is generally a lag between public and private prices, indicators such as IOIs are often timelier in reflecting market sentiments and facilitating faster price discovery. We can see that in the relationship between the performance of FINX (Global X FinTech ETF) and the IOI trend of the private companies tracked by the Forge FinTech sector.

Fintech Trends in buy/sell interestFintech Trends in buy/sell interest

The Crypto Effect

Market sentiment for the FinTech sector peaked in early 2021, led by companies such as Kraken and ConsenSys. The trend reversed in late 2021, following the trendline of Bitcoin (BTC). Bids and asks both now sit roughly -45% below primary funding rounds.

Buy/sell pricing indications for blockchain/cryptoBuy/sell pricing indications for blockchain/crypto

Wrap up

FinTech companies are an important part of the innovation economy. They have attracted significant interest and capital from both public and private investors. But not all FinTech companies are created equal, as seen in the recent public market sell-off, where crypto and buy-now-pay-later names were sold off more than others in the cohort. We see the same trend in private fintech companies covered by Forge Data, with interest in the Payments and Blockchain/Crypto subsectors greater over the past 6 months than in others; and bid pricing holding up better in Personal Finance, as reflected by investor buy/sell interest on the trading platform.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge Global, Inc. Forge Securities LLC or any of its affiliates (collectively, "Forge") to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s) and purchase agreement and will be subject to the terms and conditions and risks delivered in such documents.

This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities LLC do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services. Securities referenced in this article may be offered by Forge Securities LLC, member FINRA/SIPC.

Forge Securities LLC is a wholly owned subsidiary of Forge Global, Inc. Certain affiliates may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

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PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge Global, Inc. Forge Securities LLC or any of its affiliates (collectively, "Forge") to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s) and purchase agreement and will be subject to the terms and conditions and risks delivered in such documents.

This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities LLC do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services. Securities referenced in this article may be offered by Forge Securities LLC, member FINRA/SIPC.

Forge Securities LLC is a wholly owned subsidiary of Forge Global, Inc. Certain affiliates may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.