Falling investment continues as global Fintech financing falls in the second quarter

The news: Global fintech financing fell by a third in Q2 to continue a downward trend in investment this year, according to data from CB Insights.

Data line: CB Insights research found that for fintechs in Q2:

• Financing fell 33% quarter-on-quarter (QoQ) to $ 20.4 billion, falling for the second month in a row after shrinking 21% in Q1.
• Fintech funding fell for all major global regions.
• Unicorn births fell to 20, a minimum of six quarters.
• Fintech M&A outputs fell by 30%, the lowest number since the third quarter of 2020.
• The average deal size fell 28% to $ 23 million in H122 from $ 32 million in 2021.

The bigger trend: New data paints a picture of declining funding for fintech companies. But this fits in with a broader trend of lower total global financing, which fell 23% QoQ for Q2 to reach $ 108.5 billion, the largest quarterly percentage fall in almost a decade.

Record high inflation, the war in Ukraine and fear of a looming

recession

everyone slows down contract activity. Technology companies have been particularly hard hit achieve record levels in 2021.

Fintech financing was undoubtedly at an unsustainably high level last year. Growth would always slow, if not slow down. But greater financial uncertainty has stopped the madness of investing, and fintechs will have to tighten their belts for a tougher H2 2022 financing climate.

What comes next? Fintech financing is likely to continue to fall or possibly flatten out for the rest of 2022, with no end in sight for economic uncertainty and record high inflation.

More crypto chaos: Fintechs operating in abused crypto market will contribute to the declining financing trend and will struggle to attract financing because investors see them as high risk. Cryptocurrencies drew $ 6.76 billion from venture capitalists during the second quarter, the lowest level in a year and a fall of 31% QoQ, according to Bloomberg.

Valuations cut: Fintech companies that want to raise new money can get big cuts in valuations as investors reassess what they are worth. Klarna and Summarize have both recently completed financing rounds for valuations significantly below previous levels.

Our assessment: The decline in fintech financing reflects patterns in other industries, but this does not mean that there is no reason for alarm for the sector. Investors’ reluctance to close deals means fintechs may have to cut costs, downsize expansion plans and proceed cautiously in a tougher second half of 2022. Some will be proactive in doing so to avoid being forced into a downturn if they attract financing. Those who do not do so will struggle to obtain financing from increasingly cautious investors. Businesses that fail to adapt may face the prospect of unfolding before the end of the year.

Analyst comment: “The decline in Fintech funding in the second quarter was sharp – although levels remained higher than in any other quarter before 2021 – and volumes will most likely fall further: Public markets are a good indicator of how the VC funding landscape will develop, and public fintechs’ valuations were further cut in Q2, says Insider Intelligence analyst Eleni Digalaki.

Not only will VCs do much more due diligence before investing in fintechs, but many fintechs will try their best to expand cash runways as far as possible to avoid seeking expensive external financing (and investors who zero in on their valuations ). “