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Credit Karma, Acorns Among Fintechs Not Seeking To Go Public, Execs Say


Investment Banking Essentials Newsletter April Edition - 2022


Banking Essentials Newsletter April Edition - 2022


Investment Banking Newsletter April 2022


Banking Essentials Newsletter - April Edition

Credit Karma, Acorns Among Fintechs Not Seeking To Go Public, Execs Say

Financial technology executives from some of the industry's largest private companies quashed speculation that they would be hitting the public stage in the near future.

Initial public offerings were top of mind at this year's Future of Fintech conference in New York, amid a growing pack of fintech and tech unicorns, or private companies valued at more than $1 billion. The first three months of 2019 saw 24 IPOs, making it the second-slowest first quarter for public debuts within the last decade, according to S&P Global Market Intelligence data. At the conference, Credit Karma Inc. CEO Ken Lin, Acorns Grow Inc. CEO Noah Kerner and Rishi Khosla, CEO of U.K.-based OakNorth Bank PLC said their companies are not currently looking to go public.

"The IPO is a tool to reach [our company] mission rather than the end goal," Lin said. Credit Karma launched 12 years ago and has had many chances to go public, according to Lin, but he said now is still not the time. The chief executive sees opportunities in tax, savings accounts and insurance that Credit Karma can better take advantage of today as a private company.

In January, Credit Karma was valued at $3.5 billion, making it the sixth-largest fintech valuation at that time. At $20.3 billion, Chime, the marketing name for 1Debit Inc., was the clear leader among the startups. Chime CEO Chris Britt also spoke at the conference but did not discuss the potential for his company to go public.

Over the past 20 years, venture capitalists and private equity firms gave companies a safe haven to grow and mature without the hassles that many executives say come with operating as a public company. As a result, companies have remained private for longer than historical norms. That has made interest in this year's IPO market — with several high-profile companies expected to take the leap — especially high.

But in the kickoff discussion, Affirm Inc. CEO Max Levchin said that valuations are too high and that this year's crop of companies taking on the public market has seen a roller coaster ride.

"It's coming [home] to roost pretty quickly at this point," Levchin said on stage. The general sentiment from top-level executives who took the stage was that if private funding is available, there is less incentive to hit the public markets.

OakNorth, a London-based bank focused on lending to small and medium-sized businesses, is overcapitalized after its latest funding round, CEO Khosla said.

"You need to have a reason to go public," Khosla said, highlighting raising additional capital and providing liquidity to shareholders as the "Finance 101" reasons. "At the moment, we don't have the imperative for going public based on any of the standard factors. At some point in the future ... probably."

Palantir Technologies Inc. co-founder Joe Lonsdale called going public "a headache," especially if a company can get capital for free through fundraising. The Palo Alto, Calif.-based data-mining startup is expected to hit the public markets in the second half of the year.

CEOs like working out of the public eye, where if a deal gets delayed for a few months, they do not have to go on the defensive to explain themselves, Lonsdale said at the conference. Henry Ward, CEO of equity management startup Carta, pointed to several additional incentives to remain private: the CEO can pick investors, the company's stock is not a commodity and management maintains control of information disclosures.

Venture capitalists and private equity firms do have significant amounts of capital available to deploy into the market. Aggregate funding across all U.S. fintech sectors was about $690 million for March, according to S&P Global Market Intelligence data. That was up about 19% versus February and 1.5% versus January. And several of the largest U.S. fintech deals this year have come from private equity buyers.

"It definitely is an extra burden if you're public, and there definitely is money if you're private," Lonsdale said.