The explosive growth of financial technology has been one of the great advancements of the last decade, yet its appeal in capital markets appears to have waned in recent years.

Equity capital markets fintech volumes have been down since records were broken in 2021 with over USD 36bn of volume, driven partly by USD 11bn of IPO issuance from 23 listings, according to Dealogic data.

Since that bumper year there has been no pureplay fintech IPOs in the US, with the only volumes coming from follow-ons of already listed stock and convertibles.

The resurgence of fintech follow-ons and converts this year show that there is growing investor demand for the asset class again as evidenced by the USD 2bn convertible bond in Global Payments [NYSE:GPN].

Then in March, Coinbase [NASDAQ:COIN] issued a USD 1.2bn convertible bond and Sofi Technologies [NASDAQ:SOFI] placed convertible notes worth USD 862m.

But for IPOs, buyers want to see scale. While profitability is important, a primary driver of valuation remains revenue growth. “It is still the key metric for investors to gain confidence that the offering is differentiated and the company is gaining market share,” said Steve Maletzky, managing director and head of capital markets at William Blair. “IPOs are still a revenue growth-driven market.”

Investors also want post-IPO leverage ratio of under 4x EBITDA as a rule of thumb.

“If you’re a private company that hasn’t hit on your projections, even with the pulldown in multiples, you could be at a lower overall valuation than where you were a couple years ago,” a payments banker said. “What used to be 10x-12x revenue is now 5x revenue, and you haven’t doubled that revenue base like you were expecting.”

A compression in multiples occurred over the last 18 months, as companies worked silently to reach profitability, a fintech venture investor noted.

The IPO class of 2021 has largely disappointed in the long term and, in general, trading valuations in the broader software industry have gone from around 30x revenues at their peak to as low as 6x, and fintech companies have traded even worse, noted one ECM advisor.

Multiples are now improving, Maletzky added, but most capital is flowing toward mega-cap tech stocks.

He cited a widening gap between mega-cap multiples and small and mid-cap multiples, which has impacted the IPO market because most fintech IPOs are either small or mid-cap and thus look at a range of mid-cap comps when pricing their IPOs.

While broader indices trade at all-time highs, small and mid-cap stocks have not kept pace.

Private sales are also increasingly becoming an option. The payments banker cited one company that was previously on an IPO track now contemplating a sale because it thinks well-capitalized strategics are likely to pay closer to its desired valuation, though the banker notes that strategics themselves are not trading at the multiples they were at previously.

Stash, an investing app, is one such company that has shifted its sights from an IPO to a sale.

Maletzky, however, reckons most management teams rarely execute a long-term plan with the expectation of being bought, and independent growth and an IPO remain the objective of many.

Several smaller cap and less well-known names are waiting for some of the larger cap names to go out to see how they trade.

Stripe is the IPO everyone expects to be the “bellwether” for the category, and several sources said they are watching it for a 2025 debut. If Stripe goes well, others will follow, the ECM advisor said.

Swedish buy now pay later firm Klarna is planning to list on the New York Stock Exchange or the Nasdaq later this year or early next year, according to sources. Figure Technologies reportedly hired Goldman Sachs, JPMorgan Chase and Jefferies to take its lending arm LendCo public, possibly this year.

Fintech candidates for a 2025 IPO include Betterment, Chime, Cross River Bank, Kraken, Plaid and Xplor Technologies, according to recent reports from this news service and other media. Farther out, AlphaSense, Airwallex, Public.com and Varo Bank are viewed as IPO candidates as they have taken steps toward that end, sources have said.