A story of declining funding, fewer unicorns and insurtech M&A

If you thought the fourth quarter of 2022 felt slow when it came to investment activity in the fintech space, that’s because it was. In fact, the three-month period marked the lowest quarter for US fintech funding since 2018, according to CB Insights’ State of Fintech 2022 Report.

But overall, while total fintech funding globally was down significantly last year compared to 2021, the numbers were still higher than 2020.

Specifically, global fintech funding totaled $75.2 billion in 2022, down 46% compared to 2021 but up 52% ​​compared to 2020. The second half was particularly dismal. Only $10.7 billion in investment dollars went to fund fintech startups in the fourth quarter. About $3.2 billion of this, or nearly 30%, flowed into US-based companies.

Meanwhile, global venture funding reached $415.1 billion in 2022, marking a 35% drop from 2021’s record high.

Overall, fintech deal volume fell by 8% globally year-on-year to 5,048 in 2022. Notably, Africa was the only major region to see deals increase compared to 2021 – with a record 227 deals in 2022, a 25% year-over-year increase over years. A staggering 89% of 2022 deals in Africa were early stage – a five-year high for the continent and the highest among any other region.

Still, funding on the continent remained below 2021 levels, it noted Anisha KothapaCB Insights’ lead fintech analyst.

“This is due to increased access to technology in the region such as mobile devices and internet connectivity,” she wrote via email. “Currently, a large proportion of Africa’s population does not have adequate access to financial products compared to other regions, so the potential deployment of fintech solutions exploded as access to technology such as mobile phones and the internet increased.

In the US, fintech funding in 2022 was down 50% to $32.8 billion. Still, deal size was only down 9%, signaling another trend we saw last year: early deal share continued to dominate. On the flip side, mega-round financing and deals fell by 60% and 52% respectively from the previous year.

The story continues

Kothapa was not surprised by the overall drop in investment activity given the macroeconomic environment and the recovery from COVID, which resulted in higher inflation and the Fed raising interest rates.

“2021 was a unique year as a result of digital transformation needs during the pandemic,” she wrote. “But on the positive side, the 2022 figures were higher than 2020. Therefore, investors did not hesitate to provide capital. Instead, funding was given more to smaller deals in earlier stages versus larger deals in later stages, as we saw in 2021.”

Notably, the world saw a drastic drop in the number of new unicorns in 2022. Fintech specifically saw a total of just 69 total unicorn births in 2022, “a huge drop” (58%) compared to 166 births in 2021, according to Kothapa.

“This decline in unicorn births [for fintech] was actually less than what we saw for all VC-funded companies in 2022,” she told TechCrunch. “Unicorn births for all VC-backed companies fell 86% year over year.

Other interesting things from the report:

• Insurtech M&A exits increased 40% in 2022 to 81, up from 58 in 2021. Despite poor performance in the public markets, insurtech was the only fintech sector to see a year-over-year increase in M&A exits. Overall, global fintech mergers and acquisitions fell 20% year-on-year to a total of 742. We also saw a 72% decline in fintech IPOs, from 82 in 2021 to just 23 in 2022. There were no IPOs or SPACs is in the insurtech space throughout 2022 for the first time since the second quarter of 2020.

• After a record year, funding to LatAm and Caribbean-based fintechs fell 71% from $13.9 billion in 2021 to $4 billion in 2022. This was the largest percentage drop in fintech funding for any region year-over-year. However, offers fell just 5% year-over-year – the lowest regional drop along with Canada.

• Average global deal size fell 40% to $18.7 million.

While some say the fintech bubble popped in 2022, Kothapa disagrees.

“This was more of a correction that was the result of an unforeseen event like the pandemic,” she said. “Digital transformation is extremely important for organizations now as they navigate more seamless ways of operating and fintech is a huge part of any company’s digital transformation.”

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