Why fintech companies are opting to stay private
Some fintech companies that have recently entered the public market have had a tough time of late.
While shares of LendingClub Corp. and On Deck Capital, Inc. have each fallen more than 40 percent since their initial public offerings and LoanDepot shelved its own IPO, their private market colleagues seem to have fared better.
A new report from KPMG International and CB Insights shows that private funding flowed relatively freely into the fintech industry in 2015, feeding into an overall trend that has seen startups opt to stay private for longer.
Investment in venture capital-backed fintech companies jumped more than 100 percent, hitting a record $13.8 billion in 2015. The number of deals also increased to 653 from 586 the year before.
Here's a chart of the surge, which includes funding from non-VC sources such as angel investors, private equity firms and mutual funds.
Some of the biggest VC backed deals of the year included multiple rounds for Social Finance Inc. topping $1 billion, Prosper Marketplace Inc. at $165 million and Zenefits at $500 million. Note that Zenefits' last funding was in May of 2015, before its CEO resigned amid regulatory issues and it was reported that the startup is under investigation by state regulators.
Funding did taper off towards the end of the year as markets were roiled by intense volatility and general investor uncertainty, but KPMG and CB Insights don't think the decline will last for very long.
"This drop was likely a reflection of growing caution across all areas of VC investment, rather than a concern with fintech in particular," the report said. "While caution is expected to continue to be a trend over the next few quarters, fintech interest is not likely to be held back for long." The better performance of more recent IPOs from Shopify Inc. and Square, Inc. could also prove encouraging.
Another major driver of the increased investment came from a place that might once have been considered unexpected: Wall Street. Firms like Citigroup and Goldman Sachs have invested in a number of fintech startups, opting to work with the upstart industry instead of compete with it. Some of these startups include Circle Internet Financial Group, Motif Investing and Square Inc.
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