Why Are Fintech Companies Taking the IPO Route?


Top fintech companies like Robinhood, Affirm, Marqeta, along with Flywire and AvidXchange, are planning to take the IPO route in 2021. Let’s read the complete story.

Fintech companies are making the most of the current pandemic as person-to-person payments, or business transactions continue to move online. Top fintech companies like Robinhood, Affirm, MarqetaOpens a new window are planning to take the IPO route in 2021Opens a new window , according to people familiar with the matter. Two new entrants in the expected IPO list of 2021 includes AvidXchange and Flywire. AvidXchange is a Charlotte company that allows businesses to pay bills online, while Flywire is a Boston-based startup that helps organizations perform digital transactions in foreign currencies.

AvidXchange provides an efficient way for middle-market businesses to process invoices and make payments. The software company was cofounded in 2020 by entrepreneur Michael Praeger. The company helps medium-sized businesses such as real estate company Douglas Elliman, as it leverages invoice automation plus payment automation by moving invoices online, thereby saving a considerable amount of time. In May 2020, Praeger toldOpens a new window  Forbes, “Last year was our seventh consecutive year of growing on average 40%”. In summer 2020, it was noted that the annualized revenue of AvidXchange was approximately $200 million, and had about 6,000+ customers.”

Bill.com, the public Palo Alto Company is one of the competitors of AvidXchange. Bill.com is a cloud-based software provider that automates back-office financial operations for small and midsize businesses. It allows small businesses to pay their bills online. Investors value Bill’s stock at $7.6 billion, which has surged 150% this year. 

According to Josh Beck, an equity research analyst at KeyBanc Capital Markets, Bill is expected to garner $215 million in revenue in 2021. On the same grounds, if AvidXchange goes public with such astounding profit gains and catches investor’s eye, then it is highly possible that AvidXchange will be valued neck and neck with Bill.com. According to Pitchbook data, AvidXchange has raised about $1.2 billion to date and was last valued at $1.65 billion. However, AvidXchange has refused to comment on this data by Pitchbook.

Flywire, on the other hand, is a payments corporation founded in 2009 by Spanish entrepreneur Iker Marcaide. The new CEO of the company, Mike Massaro, a former sales executive, took over the reins from Iker Marcaide in 2013. The company ensures that high-value payments are delivered fast and friction-free, where the payment software allows the universities, hospitals, and businesses to exchange payments in 150 odd currencies. 

Some prominent clients of Flywire include Cornell University, the University of Virginia, Hilton, and Segway. According to Massaro, Flywire processes about $10 billion in payments annually and is expected to exceed $100 million in revenue in 2020. Flywire has seen exponential growth, where the company is growing between 40% and 60% a year compared to the previous few years. 

Massaro says he “can’t confirm any plans” of going public as yet, but adds, “You build these companies ultimately where they end up in the hands of a strategic acquirer, or you have an opportunity to go public. Those two trajectories are top of mind for us.” 

Massaro may not have cleared the air on whether Flywire is willing to take the traditional IPO path, but he thinks SPACs are a viable option for companies wanting to enter IPO quickly and expect the market trend to change over a period of time. SPAC acts like a medium, where investors raise money, take a “blank-check” company public without going through the traditional IPO process and later acquire a private company, thereby taking a back-door entry to an IPO. “For us, we don’t believe you can time the market,” he says. “Our belief is that good things will happen one way or another.”  

SPAC draws mixed opinions across the financial sector. A venture capitalist at a Silicon Valley firm assures that his best portfolio companies are only opting for traditional IPOs but not SPACs. According to Matt Harris, partner at Bain Capital Ventures, opinions regarding SPACs are changing. “The last six months have really started to change peoples’ minds about the benefits of SPACs,” he says. “In the past, it was so much more expensive to do a SPAC versus a traditional IPO. Now they’re getting more comparable.”

Also Read: Visa, Mastercard, and Amex Revenues Suffer Due To Travel Restrictions

Why Are Fintech Companies Seeing Gains in Going Public?

For fintech companies to withstand the aggressive growth plans as seen in the case of AvidXchange and Flywire, they require a significant amount of capital. While the option of availing loans of venture capital is always open, such recourse is accompanied by specific interest rates and regular repayments. In such scenarios, going public is the most suitable resort that the companies can opt for. 

If the IPO is successfully subscribed, the company finds itself in a position to raise the required sum of money essential for its expansion and growth plans. Besides, the company does not need to serve any EMIs or pay high-interest rates against the funds raised through IPO. Thus, IPO allows companies to be more flexible and agile with their financial structure and motivates them to push for further growth and expansion plans. 

Other Fintech Companies Eyeing IPOs in 2021

A bird’s eye view of the current situation, fintech trend, and market scene may show us that plenty more companies might switch over to the public markets in 2021. Exact dates for these companies may not be available just yet; however, the changing trend seems to light up the IPO path. Here are a couple more companies that may be eyeing an IPO in 2021.

1. Stripe 

As the world evolves through the ashes of the pandemic, digital payments seem to have touched the right chord as it now appears that the digital economy is here to stay. Going forward, we can expect digital currencies to play a pivotal role in the global economy.

We have seen apps such as Venmo (owned by PayPal) and Cash App (owned by Square) continue to dominate mobile payments. Strike, another fintech company has joined in this race. Strike has seen a huge upsurge in online shopping, which has led to star-studded investors like Peter Thiel, Elon Musk, and Google to invest in the company. The estimated valuation given by Stripe is $35 billion, after the recent rounds of funding and investments. The evaluation makes it the most valuable fintech company not on the publicly traded markets, even more than Palantir or Airbnb.

Although Stripe’s co-founder John Collision saidOpens a new window that the company has “no plans” to go public right away, we can anticipate the inkling by observing the recent investment pattern at Stripe. 

Also Read: Credit Crisis Amid COVID-19: U.S. Banks Face $320B in Loan Losses

2. Coinbase 

Cryptocurrencies – the disruptors have hit the mainstream, and people are choosing it as an enduring investment option. Currently, there are about 4500-7000 different cryptocurrencies that are traded across the globe – giving the crypto world a stock-market feel already.

Although cryptocurrency hasn’t captured the market in its entirety, the widespread use of Bitcoin or other crypto form is hinting towards an inevitable future change.

Coinbase is one of the biggest crypto exchanges in the world as it estimates to have 5% of the world’s total Bitcoin in its users’ wallets.

Coinbase IPOOpens a new window plan can give an opportunity to traditional investors who haven’t ventured into crypto trading as yet, where they can buy shares of Coinbase as a publicly-traded company and get exposed to cryptos without actually buying coins.

In Conclusion

Considering the changing fintech trend, one can expect many fintech companies to join hands with investors and go public in 2021. The upcoming IPO culture speaks volumes about why the fintech sector has dominated the equities markets over the last few years.

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