Venture capital (VC) investment in Fintech companies dropped 36% to $6 billion in the third quarter of 2023, with deal volume down 39% to 484, according to data released by S&P Global Market Intelligence.
However, despite the overall decline, late-stage startups saw a 30% increase in funding and deals, possibly due to the low comparison base from Q3 2022, when VCs reduced mature firm investments. This recovery may not indicate a trend, as early-stage investment remains slow.
Digital banks and AI-driven models attracted some VC interest but could not offset the overall funding drop. Some large fintechs accepted lower valuations to secure funds, and VCs often supported existing portfolio leaders at steady valuations. While insider rounds are typical in a tight capital environment, new investor participation is preferred for market confidence, according to the report.
The market saw broader signs of optimism as the S&P Kensho Future Payments Index rose 10% in 2023. However, a significant shift in venture funding sentiment likely requires increased exit opportunities, such as IPOs or mergers.
In the first nine months of 2023, 1,655 deals raised $29 billion, a significant decrease from 2,684 deals and $54 billion in the same period last year. Monthly deals in 2023 rarely surpassed 200, contrasting with the more robust deal flow in 2022.
Late-stage funding improved, with 44 deals raising $2.56 billion, a 30% increase. However, seed-stage investments fell 56% to $539 million, and early-stage funding dropped 64%. Growth-stage investments saw the steepest decline, down 87% to $577 million. Average investment sizes varied by stage, with some fluctuations.
Fintech valuations are adjusting, evidenced by Ramp Business Corp.’s down round valuation at $5.5 billion, down from $8.1 billion. Some startups maintained valuations year-over-year despite the downturn. A few, like Beam Benefits and Korea Credit Data, saw valuation increases in recent funding rounds.
Regionally, Latin America faced the biggest VC investment fall, down 72% to $310 million. North America, although still leading, experienced a one-third reduction to $2.63 billion. Asia-Pacific remained stable at $1.9 billion, and the US, UK, India, and Singapore dominated funding rounds.
Banking technology investments rebounded to $1.23 billion, with Bunq and Toss Bank securing significant funds, indicating some recovery in the segment.