Data Snack: With VC funds drying up, how are fintechs performing?
- In the spirit that adversity breeds innovation, it is worth reflecting on Q1 and Q2 and noting which fintech companies thrived.
- Despite the significant downturn, fintech received 18% of global VC funding in the second quarter.
Smack in the middle of Q3, we navigate an economy in transition – heaven forbid we call it a recession. Venture capital funding in the fintech space is drying up. VC funding in Q1 declined from all-time highs in 2021, and Q2 results dipped even further.
But the recent resurrection of WeWork's messiah shows the VC funding funnel still flows, albeit in trickles throughout the rest of the startup industry, including fintech.
In the spirit that adversity breeds innovation, it is worth reflecting on Q1 and Q2, noting which fintech sectors proved resilient, including which companies secured funding and achieved even higher valuations. Despite the significant downturn, fintech remains the golden child, getting a generous slice of 18% of global VC funding in the second quarter.
Source: Dealroom
A Pitchbook report found that in Q1 2022, fintech startups raised $29.3 billion in VC funding. This took place across 1,233 deals, marking a 7.3% fall in QoQ deal value. However, it still showed a 13.8% increase YOY. The payments sector took the lion's share of deal value, accounting for $9.1 billion, and reflecting a 12.4% year-on-year growth.
Checkout.com, a European payments firm competing with the likes of Stripe, raised the highest round of the quarter in the payments sector. The company raised $1 billion in a Series D round, which saw its valuation rise to $40 billion post-money value. Bolt, a checkout services provider, came in second by raising $355 million, nearly doubling its valuation from $6 billion to $11 billion.
Fintech VC deal activity by the end of Q1 2022
In Q2 2022, which may end up being the most brutal quarter of the year, fintech startups managed to raise a total of $24.1 billion globally. Again, the payments sector took the lead, accounting for the majority of deal value at $7.6 billion.
Ramp, a finance automation platform, raised the highest round of the quarter: a $748.3 million Series C at an $8.1 billion post-money valuation. The company is now reporting accelerated revenue growth during this tumultuous period. Other notable payments deals of the quarter include point-of-sale software and hardware developer SumUp. The company raised a $626.6 million late-stage round at an $8.5 billion valuation.
Fintech VC deal activity by the end of Q2 2022
In a blog, Initialized Capital advised fintech founders to think of creative ways to extend their runway instead of rushing to raise capital. As the saying goes, haste makes mistakes – confirmed in the recent valuation drop of BNPL leader Klarna. The company raised $800 million at a -85% valuation of $6.7 billion.
In the current economic climate, the modus operandi for fintech startups is to survive. An alternative way of extending the runway is by tapping into the debt market to buy themselves more time before embarking on a new equity round.