Fintech jobs are becoming slow and bureaucratic
If Goldman Sachs is right, next year will be huge for fintech M&A as many fintechs exhaust their capital runways and get bought out... That might be good for the industry. It's less good for fintech culture.
What happens to fintechs after they get acquired?
We spoke to a salesperson at a fintech that was acquired for over $1bn by an established financial services firm. He said the culture changed dramatically.
Before the acquisition and in the start-up phase, the salesman told us the culture was "fast-paced and people weren't afraid to try things." As the firm grew, management layers were added, and it became easier to manage your way up the ladder without innovating; "it was chaotic, but still fast-paced."
The merger changed everything. The firm's pace was bogged down by "obligatory compliance trainings, switching to company laptops with a billion security layers, and replacing modern systems with legacy software." You couldn't make a decision about a project without "everyone wanting an opinion."
People quit.
Which fintechs are being acquired? What are the alternatives?
Yesterday's unicorn is todays acquisition target. GoCardless, a fintech valued at over $2bn in 2022, is reportedly in talks to be acquired.
GoCardless CFO Catherine Birkett said at the Sifted Summit last week that her firm isn't the only one; "there's definitely pressure from shareholders for that liquidity." It's particularly true of firms that had those wild valuations in 2022.
Some fintechs are instead looking to IPO, but that also brings bureaucratic decline. Joel Perlman, founder of private fintech OakNorth Bank, said that going public makes you a "slave to quarterly earnings" and forces management to be "not very straightforward with your employees because there's a lot of embargoed information." The fintechs that are going public might beg to differ.
Some of the largest fintechs like Stripe and Revolut are able to consistently fundraise in order to provide liquidity to their investors and employees, but it's only really industry leaders that have that luxury.
The current fascination in startups at large are 'reverse acquihires,' a practice in which senior leadership members of a certain startup are hired by a large firm, often for a massive fee, without buying the firm itself. Roxanne Varza, director of startup campus Station F, said at the Sifted Summit that most startups "aren't even thinking of an exit strategy," but if they are, they're thinking in an acqui-hire context. When founders leave in this context, startups are thrown into disarray, but this is predominantly a practice in the AI space... for now.
Which firms are acquiring fintechs?
It's not just the major multinationals. Speaking at the Sifted Summit, Shing Lo, a partner at law firm Latham & Watkins said that the firm is seeing "a lot of startups buying smaller startups that are struggling to scale... they see it as an exciting way to bring in a whole host of very talented engineers." In these buyouts, they usually "don't pay cash, they issue shares in the acquirer." If you're in fintech for the stock potential, that sounds good.
Some of the larger fintechs are also in the market. Stripe notably acquired stablecoin infrastructure firm Bridge for over $1bn last year, and has made a number of smaller purchases like payments processing competitor Lemon Squeezy. Total bureaucracy is not here just yet.
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