Drop in European fintech funding

Quarterly financial technology (fintech) investment to venture capital (VC)-backed companies peaked as at more than US$5bn in 2015, but investors continue to take a much more cautious approach this year according to KPMG International and CB Insights.

In their latest jointly produced Pulse of Fintech quarterly report on global fintech VC trends, the ‘Big Four’ auditor and the VC investment database find that in the three months to September 2016 fintech funding levels in Germany outpaced the UK in Q3 for the second consecutive quarter, with 35% more funding raised by German-based VC-backed fintech companies than their UK peers. Germany’s fintech market received US$105m versus the UK’s US$78m.

Q3 of 2016 saw both European fintech deals and funding fall quarter-on-quarter. European fintech funding fell 43% to US$233m against a 17% decline globally to US$2.4bn over the same period. However, Asia bucked the downward trend in Q3 as funding increased 50% to reach US$1.2bn.

KPMG and CB Insights note that Europe has yet to register a single US$50m+ mega-round so far in 2016 whilst Asia saw US$50m+ fintech rounds stay level at four deals, for the fourth straight quarter.

“This quarter, Asia outpaced North America in terms of fintech funding – a major shift from historical norms,” said Warren Mead, global co-leader of fintech, KPMG International. “The US and the UK bore the brunt of market uncertainties.

“With investors watching both the aftermath of the Brexit vote and the run up to the US election, it’s not surprising that many in Europe and North America took a pause. The question is whether Asia will continue to set the pace headed into 2017. With the diversity of investments and widespread support for the growth of fintech hubs in the region, it’s a very distinct possibility.”

Anand Sanwal, CEO of CB Insights, added: “While we continue to see significant investment into fintech companies globally, the euphoria for mega-deals that we saw into the latter half of 2015 has waned.

“Total investments to key areas like marketplace lending and blockchain technology have both seen declines heading into the tail-end of 2016.”

Other findings from the Pulse of Fintech report for Q3 2016:

• The median late-stage deal size in fintech globally fell to US$23m; down sharply from Q3 2015 when median late-stage fintech deal size hit US$50.2m globally.
• VC-backed global fintech deal activity fell for the second consecutive quarter to its lowest level since Q2 2014. At the current run rate, total annual deals are projected to drop from 2015’s peak high.

• Total year-to-date funding to VC-backed insurance technology companies reached US$1.36bn at the end of Q3 2016. InsurTech-focused VC-backed deal activity topped 20 deals during three of the past five quarters.
• Next-gen payments has attracted US$1.2bn+ in 2016 VC-backed funding (year-to-date). The top 20 deals, including Affirm, Mobikwik and One97, raked in 67% of the total funding to payments technology companies in the first three quarters.

Corporates participated in 30% of global VC-backed fintech deals for the second consecutive quarter in Q3, driving a significant amount of fintech deals activity globally. Citigroup, Banco Santander and Goldman Sachs have made over 20 fintech investments in total over the past five quarters, while a host of insurers have launched corporate venture arms.

“Fintech funding is down this quarter, but it no way reflects a lack of interest among investors, particularly corporates who see fintech as a way to leapfrog ahead of the competition,” said Brian Hughes, co-leader, KPMG enterprise innovative startups network and partner, KPMG in the US.

“In Q3, corporate venture capital participation in global deals to VC-backed fintech companies reached 30% for the second consecutive quarter. This interest will continue to grow as corporates are looking to take advantage of the opportunities fintech provides.”

The findings will be discussed during a live webinar to be held on December 8.

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