Brace for Impact: VC Funding of Fintechs Has Terrible Q1

This should come as no surprise but Q1 was horrible for VC-backed Fintechs as the Coronavirus pounded private capital markets and crash-landed the once robust market. According to CBInsights, the first quarter of 2020 was one of the worst quarters for Fintech funding in years. Investors pulled back (while still claiming they were open for business), mega-rounds stalled globally, and China reported just 129 deals, raising $175 million, during the quarter – the worst reported since 2015. Seed and angel rounds dropped to 5 quarter low.

According to the report, total Fintech funding totaled $6.079 billion during Q1 versus the same quarter year prior of $7.14 billion. During Q4 of 2019, Fintechs raised $9.577 billion. The total number of deals funded dropped to 2016 levels with 404 completed transactions. Every region except Africa saw a decline in Fintech deals during the quarter.

Regionally, Asia, typically dominated by China, saw a 69% decline quarter over quarter registering 108 deals for $883 million.  India topped China’s funding total for the first time in 5 quarters. Both China and India reported 29 deals but the deals in India raised $421 million. In China, Fintechs raised just $175 million.

In Europe, 108 Fintech deals generated $1.6 billion in VC funding. Comparing to the same quarter in 2019, Fintech funding was down only slightly while the number of deals dropped from 119 in 2019.

In the US, $3.3 billion was raised for 148 deals – down both year over year and sequentially. US Fintech deals dropped 23% quarter over quarter to a 13-quarter low, as funding hit its lowest point since Q3 of 2018.

So who wins the funding crown? Digital bank Revolut that presciently raised $500 million, at a $5.5 billion valuation, in February just as the pandemic emerged. Timing counts.

Following Revolut in the Fintech funding line up:

  • toast – $400 million at a $4.9 billion valuation
  • bakkt – $300 million
  • Klarna – $200 million at a $5.5 billion valuation
  • Chime – $200 million
  • iCapital Network – $146 million

So has the Fintech party stopped? Is the funding rave over? Not so fast.

The COVID-19 was a curve-ball that no one could hit. But at the same time, traditional financial services are now moving faster to update their tech stack, go virtual and innovate at a more rapid pace. The report states that interest in digital innovation remains high. Operational efficiency counts.

The portfolio mix of growing Fintechs may change but innovation in financial services is part of a decades-long megatrend. The Coronavirus has forced a temporary pause and compelled Fintechs to refocus.

 

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