Fintech funding fell faster than any other sector in Q1. Do VCs fall in love?

Fintech has taken home the largest share of venture capital funding in Europe every year since Sifted started reporting on technology back in 2018.

But funding figures for 2023 so far suggest that it may struggle to maintain its leadership this year.

European fintechs raised $2 billion in the first quarter of 2023 – a massive 83% drop from this time last year. That’s less than the total raised by climate tech startups ($2.6 billion) and deeptech startups ($2.9 billion).

Have VCs fallen out of love?

1. Q1 funding was down 83% from last year

In the first quarter of 2022, European fintechs brought in $9.7 billion.

In 2023, things are much more subdued. The total amount raised was down to $2 billion in the first quarter, and the number of fintech deals closed was also down.

212 rounds were signed in the first three months of the year – the lowest number since Q4 2015, when there were also 212. For the past seven years, more than 300 rounds have been the norm every quarter for fintech.

2. Climate technology and deeptech take over fintech

While funding across all technology sectors in Europe has declined since this time last year, fintech is by far the hardest hit.

Healthtech, which has historical host less well funded than some of the more hyped sectors in Europe, was almost on par with fintech – startups in that sector raised $1.9 billion in the first quarter. Investors say some of this is due to broader macro trends.

“Healthcare has traditionally been cyclical, but also relatively resilient compared to other sectors,” says Shamik Parekh, health technology investor at Octopus Ventures.

He points out that the funding decline has also coincided with changing priorities for institutional investor LPs in VC funds.

“Impact and return were never mutually exclusive, but now LPs are becoming more savvy about it, and healthcare naturally fits into that,” says Parekh.

3. Megarounds are dead

In the first quarter of 2022, fintech funding collected was bowed with some hefty mega rounds ($100m+ deals) included Checkout.com’s $1 billion Series D and Qonto’s $552 million Series D.

In the first quarter of 2023, only two European fintech companies raised mega rounds: UK consumer lender Abound (formerly Fintern), which raised a £250m growth round from GSR Ventures, Hambro Perks and K3 ventures in March; and French crypto-infrastructure startup Ledger, which raised a $109m Series C in March from investors including Molten Ventures, True Global Ventures and Cathay Innovation.

This time last year, the smallest of the 10 largest fintech funding rounds was Wayflyer’s $150 million Series B.

4. Loans and mortgages surpass the usual favourites

Mortgage and lending fintechs took in the lion’s share of the sector’s funding — $635 million — in the first quarter, trumping the usual suspects: payments and banking.

Financial management solutions (ie treasury management tools such as Norway’s two) raised $382 million. It’s a sector investors say they’re even hotter after collapse of SVB UK in March.

Crypto saw the biggest drop in funding compared to this time last year, falling tenfold from $3.4 billion in Q1 2022 to $343 million in Q1 2023.

5. Consumer fintech is out of fashion

Business-oriented (B2B) fintechs raised $950m in the first three months of the year, almost double their B2C peers ($596m) – although the total was skewed by Abound’s big £250m raise.

B2B fintechs closed 128 deals in the first quarter of the year, compared to just 35 B2C deals.

Consumer fintechs also accounted for the lion’s share of M&A and insolvencies in the period; a notable B2B exception is banking-as-a-service platform Railsr’s fire sale at the beginning of March.

British circular economy fintech Twig bought French teen neobank Vybe, US savings app Acorn bought kids neobank GoHenry, and digital bank Zopa bought BNPL fintech DivideBuy.

Consumer-facing fintech insolvencies are also gaining ground. The latest was UK sustainable investment app Clim8, which will be closed in Marchby crypto investment app Nuri’s insolvency near the end of last year.

Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — You can register here.