When it came to fintech news, we saw a pretty sluggish first half of 2023, and that is evidenced by the sobering funding statistics we cover below. But things feel like they are starting to pick up, as evidenced by our crowded inboxes. Read on for more details!
Deal volume is way down
It’s no secret that venture capital investment had slowed down this year, and last week, we saw just by how much.
S&P Global recently reported that funding into global fintech companies dove 49% year over year, to $23 billion during the first half of 2023. Round values declined, on average, 12% for seed firms and 14% for early-stage firms in 2022, and round values for growth-stage and mature startups were even lower, 43% and 66%, respectively.
Even more startling, we also saw a dramatic decline in the number of funding rounds raised during that time period — just 1,178 investments were made: a 64% drop from the same period in 2022. In the second quarter of 2023, there were 522 deals that closed, down from 656 in the first quarter and down from the 944 investments made in the second quarter of 2022.
Investor sentiment was already starting to wane in the sector — the market intelligence company noted this was “the slowest quarter on record over the past 2.5 years.” However, it also called out the Silicon Valley Bank failure in March as an event that “further dampened investor risk appetite.”
Mega-rounds, those over $100 million, were also missing: 23 in the first quarter and just nine in the second quarter. This is a decrease from the 55 made in the second quarter of 2022.
Stripe was one of the big winners during the first half of the year after taking in $6.5 billion. U.S. fintechs overall raised $12.16 billion during that time period, with S&P reporting that was down 28%. Without Stripe’s raise, “it would have failed to surpass the COVID-hit H1 2020 deal volume of $8 billion,” the report said.
Company valuations did not have the same fate, though, and actually improved, rising to $9 billion and $14 billion in the first and second quarters, respectively, compared with $9 billion in the third quarter and $8 billion in the fourth quarter of 2022
Valuations looking up
Speaking of valuations, on a more positive note, PitchBook released its second-quarter fintech and payments public comp sheet and valuation guide. According to PitchBook, share prices for recently public fintech companies have been rebounding faster than the wider market — rising by 21.2% in the second quarter, compared with the Nasdaq’s 12.8% and S&P 500’s 8.3% return. At the same time, investors are prioritizing profitability, as traditional IPOs (up 21.2%) are outperforming SPACs (up 13.5%). Specifically, PitchBook said: “Neobanks, insurtech, proptech, and high-growth payments companies are all working to turn a profit, whereas well-funded incumbents are pursuing M&A. A reset almost always favors the strong.” Companies that have actually seen a boost in stock price over the past year include Coinbase, Nubank, Robinhood, SoFi, Oscar Health, AvidXchange, Flywire, Remitly, Wise, Redfin and Zillow.
Analysts James Ulan and Rudy Yang wrote: “Many fintech companies have focused their efforts on achieving profitability, resulting in reductions in personnel, marketing costs, and other operating expenses. Some fintech companies such as neobanks are beginning to emerge with profitable business models. We expect investors to remain prudent in the near term and to continue to look for companies on the path to profitability.” They also noted the flurry of M&A deals we saw in the quarter, including Robinhood’s $95 million purchase of X1 and FIS’ purchse of Bond, saying: “The pickup in M&A activity suggests that lower valuations are favorable for acquirers with adequate free cash flow and sufficient cash balances.”
Interestingly, in May, TC+ editor Alex Wilhelm concluded that “we’re close to peak pessimism around fintech.” At that time, he pointed out that fintechs haven’t fared well at all even when you account for the broader dip in valuations at tech companies and as compared to before the recent venture boom. But it looks like the tide may be turning. One can hope. — Mary Ann
To hear Alex and Mary Ann talk more about valuations, check out Friday’s Equity Podcast episode.