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4 Reasons Why The 2021 Fintech IPO Market is Only Getting Started

2021 is shaping up to be a record-breaking year for fintech IPOs, and evidence suggests that the post-pandemic listing frenzy is only getting started. 

This year, we’ve already seen the likes of Robinhood, Wise, Coinbase and many more financial technology giants go public around the world. But what will the fintech IPO landscape look like for the rest of the year and beyond? 

(Image: TechCrunch)

As the chart above shows, the IPO landscape for fintech companies has grown rapidly in the wake of the Covid-19 pandemic. Where many years went by without any fintech IPOs over the first 13 years of the 21st Century, the pipeline for 2021 has seen fintechs generate record-breaking revenue already, fuelling fears that we may be witnessing a bubble forming in a similar way to the dotcom boom of 2000. 

However, there are plenty of reasons why the fintech boom is not only here to stay, but that it’s only just getting started. Let’s take a look at four key reasons why 2021 may just be the start of fintech’s real golden age:

1. Covid Disruption

It’s important to acknowledge one of the most significant reasons behind the rapidly accelerating fintech market. Although fintech was certain to become a dominant force in the future of finance, this growth was rapidly accelerated by the pandemic and the necessity of digital transformation. 

The world changed in 2020, and investors picked up on the changing needs of businesses and individuals globally. Kathleen Smith, principal at Renaissance Capital, told Yahoo that there was a surge in “interest that investors have in companies that have benefited from the digital economy, and from biotech and some of these new vaccines. The new economy companies are really the bread and butter of the IPO market.”

We’ve seen plenty of evidence of this disruption in play. With companies like Zoom and Peloton stocks seeing significant growth as global lockdowns forced individuals to work and exercise in more remote environments. 

(Image: New York Times)

Although we’re seeing signs of correction in some of the stocks that were fast to grow in the wake of the pandemic, many companies are settling at considerably higher values than their pre-Covid levels. 

Investors keen on riding the IPO wave have delivered more examples as the year has rolled on in the form of cloud-computing firm Snowflake. Even as the pandemic begins to subside, this widespread move towards digital transformation for businesses and individuals will continue to grow. 

This will help to scale more companies that are focused on making business more frictionless in a digital environment. As PayPal developed into a multifaceted financial powerhouse over the early 21st Century, we’re starting to see financial companies make the same inroads. Fintechs like Connectum are working on innovative borderless solutions to facilitating transactions and have developed innovative 3D-secure, multi-currency, one-click transactions to simplify overseas payments, which are growing as the need for businesses to attain a more digital outlook becomes essential. 

The success of Stripe gives smaller fintechs a peek into the potential of the industry. 

2. The Lure of the IPO Boom

For fintechs that have been built on big venture capitalist funding rounds, IPOs can represent a strong exit payday for their investors as the company goes public. Although VCs can win big when a portfolio company is acquired, for huge tech giants, an IPO can represent the realisation of potential and an invaluable source of revenue following years of dependence on private fundraising

(Image: PwC)

As the data above shows, for companies looking to repay their VC backers with a big payday, there’s no better time than now to go public. In the first half of 2021, there were more IPOs listed in the US than the whole of 2020, while the $178 billion in proceeds also outstrips the entirety of the year prior. 

This has led to some exit pressure for CEOs who may be aware that the fintech boom may not be so lucrative in future years. Because of this, the widespread move towards fintech listings has created a strong ecosystem where the confidence of companies going public breeds new confidence for other fintechs to follow suit and capitalise on a strong year. 

3. Global Exchanges are More Attractive Than Ever

In the wake of Covid uncertainty and Brexit, the London Stock Exchange sought to ramp up its attractiveness for prospective companies looking for a place to go public. 

Recent reviews of the LSE, the Kalifa Review and the Lord Hill Review, both of which were published in Q1 of 2021, recommended the loosening of restrictions around the use of dual-class share structures as a way of offering greater flexibility for listings. 

Although the newly revamped London Stock Exchange got off to a rocky start with a troubled Deliveroo listing, the subsequent arrival of cybersecurity firm Darktrace was a resounding success. 

At the beginning of Q3, the LSE welcomed fintech payments firm Wise in a direct listing. The company enjoyed an opening day pop followed by sustained growth that has delivered some 14% price appreciation at the time of writing. 

The successful reemergence of London as an appealing place for tech firms, and particularly fintechs, to go public means that companies are now blessed with even greater flexibility and choice in what market they enter - which is likely to pave the way for greater volumes of listings over the coming months and years. 

4. There are Major Players Still to Come

The fintech ecosystem is only getting stronger as more technologies and companies emerge onto the scene with great ideas and fresh innovations. This year we’ve seen market leaders like retail investing app Robinhood and cryptocurrency investing platform Coinbase go public in hotly anticipated debuts, but there’s still a conveyor belt of huge companies still to come. 

Stripe’s debut is likely to be the next watershed moment for the industry, with investors likely to keenly monitor the progress of its shares as an indicator of industry momentum. However, financial management apps like Chime and Acorns are also expected to launch IPOs soon and financial services startup Plaid is likely to join them in high-potential listings. 

Although IPO listings and revenue volumes are soaring in the wake of the pandemic, the necessity of digital transformation is set to ensure the sustained growth of the fintech industry in spite of any emerging bubbles in the world of investing. With a favourable market outlook, the emergence of global exchanges that are ripe for listing, the growth of innovative technology and plenty more big IPOs to come, the fintech ecosystem is only hotting up in 2021.

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