AN AIR OF hype habitually surrounds the founders of startups and their venture-capital backers: everyone is an evangelist for their latest project. But even allowing for that zeal, something astonishing is going on in fintech. Much more money is pouring into it than usual. In the second quarter of the year alone it attracted $34bn in venture-capital funding, a record, reckons CB Insights, a data provider (see chart 1). One in every five dollars invested by venture capital this year has gone into fintech.
Deals are also proceeding at a frenetic pace. PitchBook, another data firm, reckons that venture-capital firms have together sold $70bn-worth of stakes in fintech startups so far this year, nearly twice as much as in the whole of 2020, itself a bumper year (see chart 2). These included 32 public listings, a first. Fintechs took part in 372 mergers and acquisitions in the first quarter, including 21 of $1bn or more.
In the past few weeks Visa, a credit-card firm, has paid €1.8bn ($2.1bn) for Tink, a Swedish payments platform. JPMorgan Chase, America’s largest bank, has said it will buy OpenInvest, which provides sustainable-investment tools—its third fintech acquisition in six months. Upstarts, such as Raisin and Deposit Solutions, two German platforms that link banks with savers, are merging. Others are going public. On July 7th a listing in London valued Wise, a money-transfer firm, at $11bn. Other recent or planned multi-billion initial public offerings (IPOs) include that of Marqeta (a debit-card firm), Robinhood (a no-fee broker) and SoFi (an online lender).
This blizzard of activity reflects demand from investors as they hunt for juicy returns and as the digital surge in finance takes off. But it also reveals something more profound. Once the insurgents of finance, fintech firms are becoming part of the establishment.
The current investment boom has several novel features beyond its scale. For a start, it is increasingly focused on the biggest firms, says Xavier Bindel of JPMorgan. Smaller me-toos and startups with business models that have struggled during the pandemic are no longer in favour. The first quarter of 2021 saw the most funding rounds ever for private fintech startups valued above $100m; the median round raised $10m, a quarter more than in the same period last year.
The location of activity has changed, too. Five years ago the fintech story centred on America and China. Today, Europe is catching up. A funding round in June valued Klarna, a Swedish “buy now, pay later” startup, at $46bn, making it the world’s second-most valuable private fintech firm. Revolut, a London-based neobank, is reportedly in talks to raise up to $1bn, which would value it at $30bn. Firms in Latin America and Asia, especially when led by Stanford-educated or Silicon-Valley-trained founders, have become magnets for investors. Nubank, Brazil’s biggest digital-only bank, for instance, is worth $30bn.
The craze also extends beyond payments. A surge in savings in rich countries in the past year has boosted so-called “wealth-tech” startups, such as online brokers and investment advisers. Insurance-tech firms received $1.8bn through 82 deals globally in the first quarter of this year. Lending has proved trickier to disrupt—perhaps owing to regulators’ firmer grip on this area of finance—except when it crosses over into payments, as illustrated by the rise of Klarna and its rivals.
This broadening out points to one explanation for the explosion in funding: the huge growth in the market for fintech offerings during the pandemic. Consumers and companies adjusted with rapidity and ease to the closure of bank branches and shops and the resulting digitisation of commerce and finance. Many of their new habits are likely to stick.
Factors specific to fintech are also behind the big bang. Most of today’s fintech stars are not overnight successes but were set up in the early 2010s. Since then their user numbers have swollen to the many millions and they are nearing profitability. These have become big enough to appear on the radar screens of late-stage venture-capital and private-equity firms, such as America-based TCV (which has backed Trade Republic, a German variant of Robinhood), Japan’s SoftBank (a recent investor in Klarna) and Sweden’s EQT (which backed Mollie, a Dutch payments firm, last month).
Moreover, some institutional investors—such as asset managers (BlackRock), sovereign-wealth funds (Singapore’s GIC) and pension funds (Canada’s Pension Plan Investment Board)—have made a lot of money by snapping up shares in big tech firms in recent years. These are now trying to gain an edge by investing in promising startups before they go public.
The huge cheques from these investors come just as fintech firms are looking to write the next chapter. Most startups were created to “unbundle” finance: to carve out niches where they could offer a better service than the banks. Now, however, most successful firms are rebundling, adding new products in a bid to become platforms. Acquisitions provide a handy shortcut; their high valuations mean the big firms can often snap up smaller ones on the cheap by swapping equity.
Stripe, the most valuable private fintech firm in the West, is a good example of the sector’s coming of age. It was set up a decade ago to help firms accept payments online. Now worth $95bn, it also offers services ranging from tax planning to fraud prevention. That breadth was partly achieved through acquisitions; since October it has bought three other firms.
A similar logic animates credit-card giants, which are trying to hedge against innovations in online payments; and the banks, which see fintech as a way to plug gaps in their digital offerings, cut costs, and diversify away from lending. Goldman Sachs and JPMorgan are bringing lots of smaller acquisitions under the umbrella of new, versatile consumer apps. As a consequence, the distinction between fintech and traditional banking could eventually blur, predicts Nik Milanovic of Google Pay, the tech firm’s payments arm.
Swipe right All this splurging and merging also carries risks. One is that the hefty prices paid for fintechs prove unjustified. Visa is buying Tink at a price that is 60 times the startup’s annual revenue; Wise is valued at around 20 times its revenues and 285 times its profits. Banks in particular may find out about promising fintech firms only once they are too expensive.
Another risk is that competition and innovation are stifled. Founders of startups that have been acquired often leave at the end of their “vesting” period—the minimum amount of time they must stick around for before they can sell their shares, usually one to three years. The culture that allowed a firm to thrive could then wither. Fintechs bought by banks in particular could struggle: after a deal, cultures can clash; customers often leave. Most neobanks acquired by old ones, such as Simple (bought by BBVA, a Spanish bank), have been either shut down or sold.
Nevertheless, one thing seems clear. Fintechs are inexorably gaining critical mass: their value has risen to $1.1trn, equivalent to 10% of the value of the global banking and payments industry, and up from 4% in 2018. Prices may be stretched today and some firms may flop, but in the long run it seems likely that this share will only rise further.
BWXT announces $80M investment for plant in Cambridge – CityNews Kitchener
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5 hours ago
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April 20, 2024
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BWX Technologies (BWXT) in Cambridge is investing $80-million to expand their nuclear manufacturing plant in Cambridge.
Minister of Energy, Todd Smith, was in the city on Friday to join the company in the announcement.
The investment will create over 200 new skilled and unionized jobs. This is part of the province’s plan to expand affordable and clean nuclear energy to power the economy.
“With shovels in the ground today on new nuclear generation, including the first small modular reactor in the G7, I’m so pleased to see global nuclear manufacturers like BWXT expanding their operations in Cambridge and hiring more Ontario workers,” Smith said. “The benefits of Ontario’s nuclear industry reaches far beyond the stations at Darlington, Pickering and Bruce, and this $80 million investment shows how all communities can help meet Ontario’s growing demand for clean energy, while also securing local investments and creating even more good-paying jobs.”
The added jobs will support BWXT’s existing operations across the province as well as help the sector’s ongoing operations of existing nuclear stations at Darlington, Bruce and Pickering.
“Our expansion comes at a time when we’re supporting our customers in the successful execution of some of the largest clean nuclear energy projects in the world,” John MacQuarrie, President of Commercial Operations at BWXT, said.
“At the same time, the global nuclear industry is increasingly being called upon to mitigate the impacts of climate change and increase energy security and independence. By investing significantly in our Cambridge manufacturing facility, BWXT is further positioning our business to serve our customers to produce more safe, clean and reliable electricity in Canada and abroad.”
AI investments will help chip sector to recover: Analyst – Yahoo Finance
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9 hours ago
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April 19, 2024
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The semiconductor sector is undergoing a correction as interest rate cut expectations dwindle, prompting concerns about the impact on these high-growth, technology-driven stocks. Wedbush Enterprise Hardware Analyst Matt Bryson joins Yahoo Finance to discuss the dynamics shaping the chip industry.
Bryson acknowledges that the rise of generative AI has been a significant driving force behind the recent success of chip stocks. While he believes that AI is shifting “the way technology works,” he notes it will take time. Due to this, Bryson highlights that “significant investment” will continue to occur in the chip market, fueled by the growth of generative AI applications.
However, Bryson cautions that as interest rates remain elevated, it could “weigh on consumer spending.” Nevertheless, he expresses confidence that the AI revolution “changing the landscape for tech” will likely insulate the sector from the effect of high interest rates, as investors are unwilling to miss out on the “next technology” breakthrough.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.
BRAD SMITH: As rate cut bets shift, so have moves in one sector, in particular. Shares of AMD and Intel, both down over 15% in the last 30 days. The Philadelphia Semiconductor Index, also known as Sox, dropping over 10% from recent highs, despite a higher rate environment.
Our next guest is still bullish on the sector. Matt Bryson, Wedbush Enterprise Hardware analyst, joins us now. Matt, thanks so much for taking the time here. Walk us through your thesis here, especially, given some of the pullback that we’ve seen recently.
MATT BRYSON: So I think what we’ve seen over the last year or so is that the growth of generative AI has fueled the chip stocks. And the expectation that AI is going to shift everything in the way that technology works.
And I think that at the end of the day, that that thesis will prove out. I think the question is really timing. But the investments that we’ve seen that have lifted NVIDIA, that have lifted AMD, that have lifted the chip stock and sector, in general, the large cloud service providers, building out data centers. I don’t think anything has changed there in the near term.
So when I speak to OEMs, who are making AI servers, when I speak to cloud service providers, there is still significant investment going on in that space. That investment is slated to continue certainly into 2025. And I think, as long as there is this substantial investment, that we will see chip names report strong numbers and guide for strong growth.
SEANA SMITH: Matt, when it comes to the fact that we are in this macroeconomic environment right now, likelihood that rates will be higher for longer here, at least, when you take a look at the expectations, especially following some of the commentary that we got from Fed officials this week, what does that signal more broadly for the AI trade, meaning, is there a reason to be a bit more cautious in this higher for longer rate environment, at least, in the near term?
MATT BRYSON: Yeah. I think certainly from a market perspective, high interest rates weight on the market. Eventually, they weigh on consumer spending. Certainly, for a lot of the chip names, they’re high multiple stocks.
When you think about where there can be more of a reaction or a negative reaction to high interest rates, certainly, it has some impact on those names. But in terms of, again, AI changing the fundamental landscape for tech, I don’t think that high interest rates or low interest rates will change that.
So when you think about Microsoft, Amazon, all of those large data center operators looking at AI, potentially, changing the landscape forever and wanting to make a bet on AI to make sure that they don’t miss that change, I don’t think whether interest rates are low or high are going to really affect their investment.
I think they’re going to go ahead and invest because no one wants to be the guy that missed the next technology wave.
If pension funds can't see the case for investing in Canada, why should you? – The Globe and Mail
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10 hours ago
on
April 19, 2024
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It’s time to ask a rude question: Is Canada still worth investing in?
Before you rush to deliver an appropriately patriotic response, think about the issue for a moment.
A good place to begin is with the federal government’s announcement this week that it is forming a task force under former Bank of Canada governor Stephen Poloz. The task force’s job will be to find ways to encourage Canadian pension funds to invest more of their assets in Canada.
Wooing pension funds has become a high-priority matter for Ottawa because, at the moment, these big institutional investors don’t invest all that much in Canada. The Canada Pension Plan Investment Board, for instance, had a mere 14 per cent of its massive $570-billion portfolio in Canadian assets at the end of its last fiscal year.
Other major Canadian pension plans have similar allocations, especially if you look beyond their holdings of government bonds and consider only their investments in stocks, infrastructure and real assets. When it comes to such risky assets, these big, sophisticated players often see more potential for good returns outside of Canada than at home.
This leads to a simple question: If the CPPIB and other sophisticated investors aren’t overwhelmed by Canada’s investment appeal, why should you and I be?
It’s not as if Canadian stocks have a record of outstanding success. Over the past decade, they have lagged far behind the juicy returns of the U.S.-based S&P 500.
To be fair, other countries have also fallen short of Wall Street’s glorious run. Still, Canadian stocks have only a middling record over the past 10 years even when measured against other non-U.S. peers. They have trailed French and Japanese stocks and achieved much the same results as their Australian counterparts. There is no obvious Canadian edge.
There are also no obvious reasons to think this middle-of-the-pack record will suddenly improve.
A generation of mismanagement by both major Canadian political parties has spawned a housing crisis and kneecapped productivity growth. It has driven household debt burdens to scary levels.
Policy makers appear unwilling to take bold action on many long-standing problems. Interprovincial trade barriers remain scandalously high, supply-managed agriculture continues to coddle inefficient small producers, and tax policy still pushes people to invest in homes rather than in productive enterprises.
From an investor’s perspective, the situation is not that appetizing. A handful of big banks, a cluster of energy producers and a pair of railways dominate Canada’s stock market. They are solid businesses, yes, but they are also mature industries, with less than thrilling growth prospects.
What is largely missing from the Canadian stock scene are big companies with the potential to expand and innovate around the globe. Shopify Inc. SHOP-T and Brookfield Corp. BN-T qualify. After that, the pickings get scarce, especially in areas such as health care, technology and retailing.
So why hold Canadian stocks at all? Four rationales come to mind:
Canadian stocks have lower political risk than U.S. stocks, especially in the run-up to this year’s U.S. presidential election. They also are far away from the front lines of any potential European or Asian conflict.
They are cheaper than U.S. stocks on many metrics, including price-to-earnings ratios, price-to-book ratios and dividend yields. Scored in terms of these standard market metrics, they are valued more or less in line with European and Japanese stocks, according to Citigroup calculations.
Canadian dividends carry some tax advantages and holding reliable Canadian dividend payers means you don’t have to worry about exchange-rate fluctuations.
Despite what you may think, Canada’s fiscal situation actually looks relatively benign. Many countries have seen an explosion of debt since the pandemic hit, but our projected deficits are nowhere near as worrisome as those in the United States, China, Italy or Britain, according to International Monetary Fund figures.
How compelling you find these rationales will depend upon your personal circumstances. Based strictly on the numbers, Canadian stocks look like ho-hum investments – they’re reasonable enough places to put your money, but they fail to stand out compared with what is available globally.
Canadians, though, have always displayed a striking fondness for homebrew. Canadian stocks make up only a smidgen of the global market – about 3 per cent, to be precise – but Canadians typically pour more than half of their total stock market investments into Canadian stocks, according to the International Monetary Fund. This home market bias is hard to justify on any rational basis.
What is more reasonable? Vanguard Canada crunched the historical data in a report last year and concluded that Canadian investors could achieve the best balance between risk and reward by devoting only about 30 per cent of their equity holdings to Canadian stocks.
This seems to be more or less in line with what many Canadian pension funds currently do. They have about half their portfolio in equities, so devoting 30 per cent of that half to domestic stocks works out to holding about 15 per cent of their total portfolio in Canadian equities.
That modest allocation to Canadian stocks is a useful model for Canadian investors of all sizes. And if Ottawa doesn’t like it? Perhaps it could do more to make Canada an attractive investment destination.
