A managing partner at a financial technology investment firm believes the valuation of fintech companies is "frothy" and firms are artificially boosting their value by throwing around buzzwords like "machine learning" and "blockchain".
"I would call valuations right now frothy in general... tech generally is frothy," Managing partner at Motive Partners Andy Stewart, said at the International Fintech conference in London last week.
A frothy market occurs "where asset prices become detached from their underlying intrinsic values as demand for those assets drives their prices to unsustainable levels," according to Investopedia.
It can often lead to a bubble.
Mr Stewart said capital flows were driving fintech valuations.
"I think that's a result of the success of many of the financial technology companies out there, I think it's a result of the amount of capital that's flown in, if you look at the last two years you've had record amounts of capital flowing into financial technology," he said.
He also lamented that investors were drawn to fancy buzzwords like moths to a flame. Something he said investors need to be wary of because fintech firms were well aware of the draw of buzzwords and using them to their advantage.
"One thing that people have to be careful of is buzzwords. Anything that has machine learning in it or blockchain in it, the valuation goes up, 2, 3, 4, 5x. We've seen companies come back to us multiple times and originally it's an AML/KYC engine which looks pretty interesting. Then it turns out to be AML/KYC [anti-money laundering/know your customer] engine powered by machine learning and using blockchain, and it's a much more valuable company. "
Mr Stewart said there were still many valuable companies to invest in out there but "you just have to look a little harder".