Fintech and crypto amongst sectors taking a hit as values fall

Startups in the fintech, crypto and digital spaces are in the midst of a price decline, with companies seeing valuations drop by up to 65%. According to new data from KPMG US, the volume of deals fell by 30.9% in the second quarter of this year with deal valuation dropping from $191 billion to $163 billion, equating to a 14.8% decrease. This shift in pricing and opportunity is indicative of a change in the industry, with M&A activity slowing down due to VC’s becoming more selective in terms of what they put their money into. With this in mind, Trachet, a leading business advisory service, is offering startups their expertise in how to navigate this shift – and make the most of it.

The fact that VCs are being more careful about where they invest their funds could actually lead to more M&A activity, according to Bob Ruark, Principal of Banking and Fintech Strategy Leader for KPMG US. Although currently, inflation is impacting businesses across the board, as prices and valuations begin to stabilise deals will begin to ramp up again. In order for them to be carried out smoothly when the opportunities do arise, Trachet stress that financial advisors are key in helping to facilitate the process and gain the best terms for the firm involved. According to data from Deloitte, nearly two-thirds (63%) of businesses report that the success of their M&A was moderately or highly dependent on a successful transformation – often led by a senior level and external advisor.

In order for startups to take advantage of these opportunities, Claire Trachet outlines the importance of bringing an experienced CFO or COO – in an interim capacity – to implement transformational changes to working capital, reorganise the firm and increase cost reduction to secure the best deal possible.

Claire Trachet, CEO of Trachet, explains:
“Venture capital tends to work as a reactive market, each startup depends on the next stage (either a subsequent round of financing or an exit) for their short-term success – usually every 16 – 18 months. The startup ecosystem has enjoyed a generation of businesses that have only experienced a bull market, where funds and good terms have been widely available. As the world enters a bear market, it is the late-stage startups with a negative cash flow (a lot of them) and that have raised money at high prices, that are going to be the most compromised – the well of free money has dried up.

“We’re entering uncharted territory, forcing a conversation across all management teams will help create communication and agility. Startups would benefit from having a process in place for sudden changes within their immediate competition, industry, or the global economy. It’s important amidst these challenging times to assess end goals – perhaps in light of what’s happening, a better course of action may be to consider an exit, or conversely there may be another company worth acquiring to fortify and expand existing operations.

“Then startups should focus on extending the runway, so to speak – be diligent with the business’s working capital by optimising cash flow, review the contracts you have with your clients and minimise accounts receivable. Applying this mentality to the whole of the organisation is going to be key in the next year, whether you’re entering a fundraising round or considering an exit, ideally startups should be doing both.”