Recently registered technology companies have spent more than $12 billion in cash over the past year.
Currently, many firms working in the fintech sector are trying to solve the problem of attracting new investment funds. The main difficulty lies in the fact that against the background of falling stock prices of companies, it is extremely difficult to convince investors to provide financing. This problem is particularly sensitive for non-public companies.
In 2020 and 2021, the companies concluded deals at an incredibly high rate. Now the trend has changed direction, which is why firms are forced to either cut costs, raise capital through extreme efforts, or agree to a takeover by larger representatives of the market.
Adam Fleischer, a partner in capital markets at the law firm Cleary Gottlieb, says that companies found themselves in a favorable situation as a result of high stock prices, but the realities of the market have changed and become the opposite of the state of affairs that was observed two or three years earlier. Now firms are in a situation that, if current trends continue, does not bode well.
The expert says that only an increase in the value of shares can correct the unfavorable situation of companies. Adam Fleischer also stated that in the current realities, firms have to make a choice, not between a more promising and less effective option of action, but to agree to the least damage due to the impasse.
At the beginning of this year, positive indicators were noted in the field of capital raising compared to last year’s state of affairs, but there are still no reasons to talk about a fundamental change in the situation.
Only 17 of the 91 newly registered technology companies that reported results this year made a net profit. Cash-losing firms spent 37% of their earnings from an initial public offering (IPO) last year. For example, Marqeta received 24% of available funds during the week during which investors followed reports of a slowdown in growth. According to this company, the volume of processing increased by 41% year-on-year, amounting to $ 47 billion, but the management was unenthusiastic about the result, saying that the emerging trends indicate an imminent decline in growth rates.
Venture capital companies are finding it increasingly difficult to raise money. In the last quarter of 2022, the amount of funding became the lowest in the last ten years. The decline was caused by the same factors that had a negative impact on the activities of technology startups in 2022. Fewer sellers are coming to the IPO, and the value of shares is declining amid rising inflation and decisions to increase interest rates.
As we have reported earlier, UK Fintech Investment Declines 56% in 2022.