Route to IPO: when is the time for a fintech to go public?

There is little doubt that current economic conditions have an effect on planned IPOs. Against a backdrop of rising inflation, mass layoffs and falling valuations, many fintechs appear to be rethinking their stance on IPOs. The result is a number of canceled or delayed IPOs.

Fintech decline leading to canceled IPOs

Payments giant Stripe reportedly planned to go public sometime this year, but that prospect is looking increasingly likely. Last November, Stripe founder and president John Collison admitted that an IPO was “not an imminent event,” while this summer he admitted he “didn’t know” whether the firm could still justify its $95 billion valuation.

Stripe likely doesn’t need the money, raising the possibility of a direct IPO instead of an IPO. The fintech secured $600 million in a Series H round last March (the same round that gave it a $95 billion valuation) and followed it up with a venture round in June 2021.

Zopa, the UK digital bank, was also expected to go public by the end of this year, but appears to have put those plans on hold. “We just have to wait for the markets to be in the right place,” Zopa CEO Jaidev Janardana told CNBC on Money20/20. “You only want to do an IPO once, so we want to make sure we pick the right moment.”

Similarly, South Korean fintech Viva Republica – the owner of financial app Toss – is pushing back its planned IPO by two or three years, while BNPL company Klarna appears to be a long way from a public listing after seeing USD 40 billion wiped off its valuation.

For some companies, the time is still right for an IPO. PensionBee, which allows consumers to consolidate their old pensions into a single plan, had always planned to become a publicly traded company. After a period of rapid growth, that moment came in April 2021 during the pandemic – and the timing may have been a blessing rather than a curse.

“For the most part, our IPO went like clockwork,” PensionBee CEO Romi Savova tells FinTech Magazine. “We went through the entire IPO process under lockdown, which in some ways was beneficial given the people’s focus, accessibility and the efficiency we were able to achieve. We were able to use video conferencing to great effect to connect with our team of advisors, often on hourly basis, and to meet new investors virtually to introduce them to our story.”

When is the right time for a fintech to go public?

“High-growth and pre-IPO phases are major stress tests for any company,” says Tony Tiscornia, CFO at business spend platform Coupa. “An uncertain market environment that we are seeing now does not help.”

The current circumstances certainly raise the question of when an IPO is appropriate, and for whom. Going public is a significant long-term commitment that should not be seen as a shortcut to additional funding, nor an exit for early-stage investors.

“It is important for companies to remember that the initial costs of going public can be high, in addition to the ongoing costs associated with compliance, reporting and disclosure requirements,” says PensionBee’s Romi Savova. “The added scrutiny from regulators and investors once public also means that any company pursuing an IPO must be able to put an effective long-term communications strategy in place.

“If the motivation around an IPO is solely to gain access to capital, options such as private equity or debt financing may be better options. Similarly, if the desire for an IPO is to achieve an exit for early investors, there are private sale options. A merger or a acquisitions can also produce an exit event with the added benefit of combining complementary skills and knowledge from separate businesses.”

According to research conducted by Coupa, a large number of fast-growing businesses are delaying IPOs due to the current circumstances. Coupa found that nearly three in four high-growth companies (72%) believe their financial processes are not robust and scalable enough to support their growth plans. The firm argues that IPO deferrals provide a perfect opportunity for a business to reassess and resolve issues that it might otherwise have rushed into a public listing.

“For those companies that have delayed an IPO, now is the right time to digitize back office functions,” says Coupa’s Tony Tiscornia. “This will not only instill confidence in financial operations and compliance ahead of being ready to go public, but also ease the burden of increased scrutiny once they become public.”

Advice for fintechs working towards an IPO

PensionBee’s Romi Savova has some first-hand advice for fintechs considering a public IPO: “The process requirements are pretty well known and the reasons for seeking the IPO should be clearly articulated and well understood,” says Savova. “Each company will go through an assessment process to ensure that all the core areas essential to the IPO process are prepared in advance.

“The process is inevitably intense because the stock exchange has high standards for listed businesses and the highest degree of care must be taken in everything you do. For any other business considering going down this path, it is important to remember that there is a big commitment, as well as a future commitment to be very public and open about everything you do.”

Savova says that startups should plan early and understand their strategic reasons for going public, as well as make the decision about which jurisdiction to list in.

“For us, the UK made perfect sense as it reflects both where we operate and where all our customers are based, and it was the logical listing arena in the context of inviting our customers to also be part of our listing. Beyond providing the opportunity to standing out on the highly respected London stage, the UK is known for being a world-class stock exchange with high standards of governance, and home to some of the world’s leading technology companies.

“For any company with a vision of going public, they would be well served to act as a public company long before they are one. Early adoption in corporate behavior and mindset, along with an experienced management team and board, helps ensure a smooth transition without the need for any major culture change once the company is listed on the stock exchange.

“Finally, it is important to ensure sufficient management bandwidth so that the focus remains on running the business, which continues to be the main priority, especially when looking at it in the spotlight of becoming a publicly traded company.”