Fintech seed rounds up nearly 50% amid challenging funding environment in 2022
Venture capital investment in North American-headquartered fintechs fell to $24.39 billion in 2022, down 34% from the previous year, according to S&P Global Market Intelligence’s recently released Global Fintech Funding Trends report.
After a promising start to the year, funding began a precipitous decline in Q3 as interest rates and macroeconomic concerns rose in unison. Investments fell from $18.02 billion in the first half to $6.37 billion in the second half. In particular, the number of fintech funding rounds in North America increased in 2022, rising by 5%. But following the funding trend, the number of rounds dropped by about a third in the second half of the year compared to H1.
Companies in mature stages are hit hardest, while companies in the seed phase see greater activity
The most dramatic decline in 2022 was seen with mature-stage companies, which dropped from 207 funding rounds in 2021 to 51 in 2022. The average round size for mature-stage companies fell from $121 million in 2021 to $47.6 million in 2022. funding rounds were far fewer in 2022, falling 53% from 2021 to 68. And unlike 2021, which saw 40 funding rounds at or above $250 million, only 15 such rounds took place in 2022. Only two of those rounds — Pie Insurance Holdings Inc . . . and Avant LLC – occurred in the second half of 2022.
Conversely, the number of early-stage funding rounds increased by an impressive 49% to 407 rounds in 2022, with average deal size up a modest 9%. Capital continues to pour into the next wave of industry disruptors—an encouraging sign of continued innovation.
US-headquartered startups dominate North American fintech funding
US-headquartered startups unsurprisingly dominate North American fintech funding, accounting for 97% of the total raised in 2022, up from 93% in 2021. In fact, the top 25 fintech capital seekers in North America were all US-headquartered companies . Crypto-oriented investment and capital markets technology providers were prominent, with large rounds from players such as Fireblocks Inc. ($550 million), FTX US ($400 million), PrimeBlock ($300 million) and Genesis Digital Assets ($250 million).
Still, all fintech segments in the US showed year-over-year declines in funding in 2022, with the largest declines in digital lending (-48%) and banking technology (-43%). After taking the top spot in 2021, payments ($5.12 billion) was displaced by investment and capital markets technology ($6.98 billion) as the largest fundraising category for US fintechs in 2022.
Infrastructure-oriented payment startups are top-of-mind
We expect infrastructure-oriented payments startups to be top of mind for investors as they seek out providers with slower burn rates and deeper embedded customer relationships. This trend was already evident in the second half of 2022, especially with payment startups targeting B2B use. ConnexPay LLC, which helps businesses connect customer and supplier payments, raised $110 million in October; Denim, a payment platform for freight brokers, raised $126 million in September; and PayIt LLC, a payments platform for government agencies, raised $80 million in August. Additional examples of recent momentum in the B2B payments arena include Nitra Inc. ($62 million, October), Mesh Payments ($60 million, October) and Balance Payments Inc. ($56 million, July).
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