Value of Power Corp’s FinTech portfolio drops as Wealthsimple faces second May markdown

Wealthsimple
Power calls decrease in fair value of Wealthsimple stake “consistent” with broader stock market decline.

Montréal-based financial services conglomerate Power Corporation of Canada (Power Corp) has written down its valuation of Toronto-based FinTech startup Wealthsimple, in addition to other FinTech investments it holds through two of Portage Ventures’ funds, amid a broader tech stock rout.

Power Corp revealed the reduction last week in its Q1 2022 earnings report, noting that the fair value of the firm’s stake in Wealthsimple had decreased by $147 million CAD, or $0.22 per share. Power’s Corp’s share in subsidiary IGM Financial’s own stake in Wealthsimple also recently fell by a comparable amount, after IGM reduced the value of its interest in Wealthsimple by 20 percent ($228 million) earlier this month.

The total value of Power Corp’s investments in Wealthsimple has fallen by $400 million.

As of March 31, the total value of Power Corp’s investments in Wealthsimple, across all Power-related entities, is $1.7 billion. This represents a 19 percent or $400 million drop compared to the $2.1 billion value of Power Corp’s Wealthsimple stake following the latter’s May 2021 financing.

According to Power Corp, this decrease in fair value “is consistent with the decline in stock markets and public market peer valuations in the first quarter of 2022, among other factors.”

These moves are just the latest signs that the public tech selloff—which has been fuelled by rising inflation, interest rates, and geopolitical tensions—has begun to impact private markets.

According to its latest quarterly report, Power Corp holds a 42.5 percent diluted equity stake and a 56.5 percent voting interest in Wealthsimple through a range of entities it controls, including Power Financial, FinTech VC firm Portage Ventures, and IGM. Power Corp owns 61.6 percent of IGM, which in turn owns 23 percent of Wealthsimple.

Through Portage Ventures, Power holds stakes in Wealthsimple, and fellow Toronto-based FinTech startups Koho, Clearco, and Borrowell.

Power Corp also wrote down the value of its FinTech investments in Portage Ventures’ first and second funds by 22 percent and one percent to $128 million and $864 million, respectively. Wealthsimple accounts for the majority of Fund I’s value.

Conversely, the fair value of Portage’s third FinTech fund—for which it has secured $788.5 million—increased by 20 percent during Q1, rising to $165 million.

RELATED: Wealthsimple secures $750 million CAD, claims $5 billion valuation

Founded in 2014, Wealthsimple started out as an investment platform, but has since expanded into other areas, including spending and saving, crypto, taxes, and peer-to-peer payments. The startup has seen growth during the pandemic as the popularity of its stock trading app, Wealthsimple Trade, soared amid a rise in retail investing activity.

As of March 31, Wealthsimple had 1.7 million Canadian customers, excluding tax clients. The company also held $19.4 billion in assets under administration, for year-over-year growth of 59 percent.

Back in May 2021, Wealthsimple raised $750 million CAD at a post-money valuation of $5 billion, making it one of Canada’s most highly-valued tech startups. Of this total, two-thirds—$500 million—was used to buy part of Power’s stake, while $250 million consisted of a direct equity investment in Wealthsimple.

This financing was co-led by Meritech and Greylock, with participation from a group that included DST Global, Sagard, Iconiq, Dragoneer, TCV, Inovia Capital, Allianz X, and Canadian celebrities like Drake and Ryan Reynolds, among others.

Last week, IGM reduced the value of its Wealthsimple stake to $925 million, from $1.153 billion at the end of last year. IGM CEO James O’Sullivan told The Globe and Mail he is confident that IGM’s new valuation of Wealthsimple hits the right mark, adding that the move was not a reflection of Wealthsimple’s business model, prospects, or management.

RELATED: Portage Ventures closes $788.5 million CAD for third FinTech fund

“We are extremely proud of Wealthsimple as their largest shareholder, but from a distance, you only have to look at the publicly traded fintech companies to see that valuations have reset and so this reflects our judgment as to what an appropriate value is,” O’Sullivan told The Globe.

Tech stocks have experienced a volatile start to 2022, as early pandemic winners ranging from Etsy to Netflix, PayPal, and Ottawa e-commerce giant Shopify have seen big chunks of their market value wiped out in recent months. This rout has also impacted companies similar to Wealthsimple, as US-based online brokerage Robinhood’s stock has dropped as much as 80 percent amid these conditions.

Since January, experts have forecast that the broader market forces that have hurt the value of publicly-traded tech companies would spread to private markets and impact the valuations of Canada’s tech startups.

Power Corp is far from the only publicly-traded firm to reduce the value of its stake in tech startups in recent months. Boston-based asset manager Fidelity has recently marked down the valuations of its investments in private payment processing firm Stripe and grocery delivery company Instacart, while Japan’s SoftBank has cut the value of its stake in fellow FinTech Paytm.

Feature image courtesy Wealthsimple.

Josh Scott

Josh Scott

Josh Scott is a BetaKit reporter focused on telling and breaking Canadian tech and innovation stories. His coverage is more complete than his moustache.

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