FinTech Cash Burn totaled $12 billion in 2022

Newly publicized tech companies reportedly went through more than $12 billion in cash during 2022.

And as the Financial Times (FT) reported on Sunday (March 5), many of these companies are now struggling to figure out how to raise more cash amid falling share prices. It’s a situation that highlights the problems that non-public companies face when trying to drum up capital.

After a frenzied scramble to strike deals in 2020 and 2021, companies now face either having to cut costs, undergo costly capital raisings or takeovers by larger rivals or private equity groups, the FT noted.

“[Those companies] profited from the very high valuations, but unless you really buck the trend, your stock is way down now. It can lead to you being stuck, says Adam Fleisher, a capital markets partner at the law firm Cleary Gottlieb, to the FT. “They have to figure out what is the least bad option until things turn around.”

Despite a shift towards profitability following last year’s market downturn, the FT says its analysis of recent filings shows many companies still have a long way to go.

According to the report, only 17 of the 91 newly listed technology companies that have reported results this year have shown a net profit, with cash-burning firms using 37% of their initial public offering (IPO) proceeds last year.

The news comes after a week in which earnings reports led to a 2.7% loss for the companies monitored on PYMNTS’ FinTech IPO Index.

Among them is Marqeta, which gave up 24% in a week in which investors focused on reports of slowing growth. Marqeta saw processing volumes rise 41% year over year to $47 billion, but management said there are some headwinds in the mix, forecasting lower growth.

Venture capital firms, meanwhile, are having a harder time raising money, as PYMNTS recently noted, with funding in the final quarter of 2022 at its lowest point in nearly a decade.

The decline was driven by the same factors that affected tech startups in 2022: fewer sellers going public through IPOs, and stocks and valuations falling as interest rates and inflation rose.

PYMNTS has also recently examined the “sea change” occurring in the VC fundraising space, as FinTech companies increasingly move away from a “growth-at-all-costs” mindset in favor of focusing on profitability.

But as Balderton Capital’s Rob Moffat told PYMNTS late last month, focusing solely on profitability “in the business of growing large technology and software companies” may not be a winning tactic.

He said some businesses may achieve profitability early on, while others that need capital and suffer from persistent losses may still become profitable.

Moffat argued that companies in the second category should not be denied funding if they can meet key metrics such as strong gross margins and customer retention while having enough funds to pay back sales costs within a year.

He said his UK firm would consider investing once those criteria are met and “we are very confident that you have all the pieces that can [help you] grow to profitability.”