Public fintechs prioritize profit over growth

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The Daily Pitch: VC

April 4, 2023

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

In today's Daily Pitch, you'll find:

Our latest Global Markets Snapshot breaks down one month of trends in the equity, debt and commodities markets.

Lower valuations have pushed newly public fintech companies to find alternate paths to reach their goals.

With Endeavor Group's acquisition of WWE, Endeavor backer Silver Lake is adding to its already considerable sports and media portfolio.

Today's Top Stories

Newly public fintech companies streamline in pursuit of profit

As low valuations of newly public fintech companies continue to stress the market, these companies are prioritizing profit over growth. This sentiment is expected to diminish the rate of revenue growth as fast-growth, low-profit companies cut costs to compete. However, first-time M&A activity has provided a path for fintech companies to unlock new streams of growth.

Our Q1 2023 Fintech & Payments Public Comp Sheet and Valuation Guide tracks stock performance, revenue, EBITDA and earnings-per-share forecasts as well as market caps of key publicly traded companies. This quarter's guide also includes new data on gross income and a list of public fintech and payments M&A deals.

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A second front in the fight against inflation

March was chaotic for both private and public markets. In response to the threat of bank runs in the era of instant communication, the Federal Reserve and other central banks took action to shore up available liquidity and stave off a financial disaster.

Our latest Global Markets Snapshot breaks down a month of trends in the equity, debt, and commodities markets, tracking returns across a range of indexes and sectors. It also features private markets activity, including major deals, fundraising, IPO performance, lending volumes and unicorn creation. In this monthly digest, we provide the datasets that the PitchBook Institutional Research Group is keeping an eye on as markets remain volatile.

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A message from Allied Advisers

Brief Analysis (SaaS): Rule of 40—1H 2023 Update

Allied Advisers' updated Rule of 40 report shows that software companies that exceed Rule of 40 continue to trade at significant premium valuations compared to companies that fall below Rule of 40. In today's challenging market conditions, clients and prospects that meet or exceed Rule of 40 are getting bids at higher valuation multiples than their peers that don't meet this benchmark.

Rule of 40 continues to become more fashionable in today's capital-constrained environment and is a useful tool for founders, management teams, and investors to keep in mind as they build their companies for optimal financing and exit valuation.

Allied Advisers is a global technology-focused investment bank specializing in M&A and capital raises for middle-market companies.

Read the full report here

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Cure Ventures debuts with $350M life sciences fund

From left, Cure Ventures managing partners Lou Tartaglia, Richard Lim and David Fallace
(Kathy Tarantola Photography/courtesy of Cure Ventures)

The formation of new life sciences-focused venture firms is rare, even in strong markets. Despite biotech and pharma VC investments slowing significantly this year, biotech researchers and entrepreneurs can now tap another potential source of capital.

Cure Ventures, a firm launched by biopharma veterans, today announced its inaugural $350 million fund for backing both novel drugs and medicines already undergoing clinical trials.

Recommended Reads

PE buyout firms love investing in industries in distress, but the US banking sector presents a challenge. [The Wall Street Journal]

No one responds to polls anymore. Researchers are now asking AI instead. [The Atlantic]

Researchers say viruses can kill antibiotic-resistant microbes and help treat infections. Regulators have to figure out how to get them on the market. [Wired]

Since yesterday, the PitchBook Platform added:

29

VC valuations

2258

People

626

Companies

28

Funds

See what our data software can do

The Daily Benchmark:
2013 Vintage Global Funds-of-Funds

Median IRR

18.08%

Top Quartile IRR

24.59%

2.16x

Median TVPI

Select top performers

Glouston Ohio Midwest Fund II

Bay Hills Emerging Partners III

Franklin Park Venture Fund Series 2013

*IRR: net of fees

49 Funds in Benchmark »

Check out the latest version of PitchBook Benchmarks

VC Deals

Amsterdam-based Fourthline, which creates software for banking privacy compliance, has secured a €50 million investment. Finch Capital led the round, TechCrunch reported.

Biotech startup Mercy BioAnalytics has raised a $41 million Series A led by Novalis LifeSciences.

LI.FI, a Berlin-based blockchain startup, has raised $17.5 million in a Series A co-led by CoinFund and Superscrypt.

Energy Impact Partners has led a €15 million Series A for Netherlands-based heat pump installer HeatTransformers.

SaaS cybersecurity startup Push Security has raised a $15 million Series A led by GV.

Acre, which offers a mortgage management platform, has secured €7.3 million from McPike Global Family Office and existing investors Aviva and Founders Factory.

PE Deals

M&G is one of three major shareholders in UK events company Hyve that plan to vote against a takeover by US PE firm Providence Equity Partners, the Financial Times reported. Hyve's board accepted the £481 million (about $595.6 million) bid last month, with its largest shareholder, Strategic Value Partners, saying it would vote in favor of the offer.

Boston-based PE firm Ethos Capital has acquired Newforma, a project management software specialist, from Battery Ventures.

Infrastructure investor Ancala Partners has acquired a majority stake in Noventa, a renewable energy specialist.

GreenGroup, an industrial recycling company backed by Abris Capital Partners, has acquired Lithuanian waste management company Zalvaris.

BC Partners plans to acquire a majority stake in Metropolitan College and AKMI IEK, providers of further education in Greece.

BGF has made a £3.75 million follow-on investment in UK fabless semiconductor company Forefront RF.

Exit & IPOs

Three EnCap Investments-backed companies—Black Swan Oil & Gas, PetroLegacy Energy and Piedra Resources—agreed to sell oil and gas assets in the Permian Basin to Ovintiv for $4.25 billion, while Ovinitiv has agreed to purchase Bakken assets from EnCap-backed Grayson Mill for $825 million.

EIG has sold its remaining 25% stake in STX Midstream, a pipeline interest holding company, to NextEra Energy Partners for $200 million in cash, exercising a buyout right outlined in a 2019 financing agreement with EIG.

US-listed software company Trimble has completed its purchase of Hg-backed Transporeon, a transportation management software company.

Investors

Sanabil, the growth investment arm of Saudi Arabia's Public Investment Fund, has disclosed the names of dozens of VC and PE firms it has invested in, including Andreessen Horowitz, General Atlantic, Insight Partners, Silver Lake and Thoma Bravo. Ties to the sovereign wealth fund have long been hidden from the public eye. Some investors sought to distance themselves from the country and its influential fund after journalist Jamal Khashoggi was murdered at a Saudi consulate in 2018.

Corporate M&A

London-based managed IT services provider Apogee Corporation has agreed to acquire industry peer Argon Business Systems. Argon has clients in both the public and private sectors.

Chart of the Day

"It is worth noting that the number of Japan-based active CVCs ("active" defined as an investor that has made at least one deal over a given year) has consistently and substantially exceeded that of Japan-based traditional VC firms throughout the past decade."

Source: The State of CVCs in Japan

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Public fintechs prioritize profit over growth

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