Fresh fintech funding data tells us what investors are chasing in a downturn

We are three quarters of the way through a roller coaster year for European fintech.

Although the year started with a bang, funding has fallen of late. Total investment halved from $6.3 billion over 348 funding rounds in the second quarter to $2.8 billion over 192 rounds – the smallest total since Q4 2020.

That said, the third quarter’s two biggest fintech rounds in the world was raised by European companies: German insurtech Wefox and Italian payment provider Satispay. Both nabbed major US investors from the likes of Target Global, Coatue and Addition for their hefty late rounds.

So what does the data tell us about which fintech sectors will weather the economic storm?

Wefox and Satispay stand out from the crowd

As with the previous two quarters, the continent’s overall investment numbers were pushed up by some large later rounds from companies that could have gone public had public markets not taken a turn.

Berlin-based insurtech Wefox raised one of the biggest rounds of the year with its $400 million Series D in July, led by UAE-based Getir backers Mubadala Capital, and a list of other big VC names including Horizon, Target Global, Eurazeo and Omers Ventures.

Just before the end of the quarter, Milan-based Satispay raised the second largest round with its €320 million Series D, making it Italy’s second unicorn in a big moment for the country’s tech scene. The round also placed it among the year’s top 10 largest, and ahead of the $213 million Series B raised by its Italian unicorn predecessor Scalapay in February.

Crypto companies raised the lion’s share of the quarter’s biggest rounds, and $100 million seemed to be the VC’s magic number. Blockchain protocol RubiX Network, digital wallet Safe (formerly Gnosis Safe) and blockchain network 5ire raised $100 million from mainly crypto-focused funds, while blockchain startup Fuel Labs raised $80 million.

Insurtech takes over payments

It may be one of the least sexy corners of B2C fintech, but investors were all over insurtech in Q3, knocking payouts from the top spot in terms of total investment.

Overall, $679 million flowed into the sector through 28 funding rounds – while payouts raised $547 million, but over 39 rounds. Naturally, WeFox’s bumper round had a part to play in this total. Other notable rounds included London employee insurance app YuLife’s $120m Series C, which captured investors such as Japan’s Daiichi Life, Creandum, Anthemis, Target Global and LocalGlobe, and Munich health insurer Ottonava’s €34m Series F from growth investor Cadence.

Most of the big insurtech rounds in the period went to B2C companies that offer a more focused “niche” take on insurance rather than a full suite of products – like Ottonava’s health focus or YuLife’s employee wellness product. VCs tell Sifted that going forward they are moving towards B2B products – such as Berlin white label insurance provider Element, which raised a €21.5 million Series B in July.

“Investors are now becoming weary of full-stack B2C insurance models that have raised large rounds in previous years but are now struggling with high acquisition costs,” said Gerald Parloiu, partner at Global Founders Capital. “We are now seeing more interest in embedded insurance products and B2B insurers in general.”

Although payments continue to be a standout in the list of top-funded subsectors, it has also seen some of the biggest valuations in recent months – including Klarna’s 85% decrease in July and SumUp falls below its expected valuation by more than 50% at the end of June.

Investors tell Sifted that they still believe it is a watertight sector with guaranteed potential for growth, but they are also looking more at infrastructure plays behind the scenes.

“Going forward, we’re looking for vertical SaaS deals that have the ability to move into the payment workflow, and anything to improve friction in the B2B payment workflow,” Lily Shaw, fintech investor at Omers Ventures, tells Sifted.

Crypto investments also remained very high, totaling $452 million over 28 funding rounds, as VCs and asset managers have realized it is here to stay took advantage of the crypto winter to find better deals and “get in cheaper”.

And not surprisingly, investors either have bet big on B2B financial management solutions (or CFO tools), which is designed to help businesses increase their financial efficiency when the economy cools.

“These tools are more likely to stay funded as belts tighten,” Nahu Ghebremichael, partner at Singular VC, tells Sifted.

“It’s not a business versus SME take part in these because it’s equally important for any type of business. SMEs in particular are often not well resourced to deal with nuanced economies, but they cannot float above it as they can in times of growth. It’s life or death for some of them when the market is rocky.”

Italy surpasses France

When international investors finally started to cast their eyes on Italian fintech this year, the country broke into the top five countries for investments in the first quarter.

Now it has risen through the ranks to take third place behind the UK and Germany – and ahead of France – when it comes to overall investment. Ireland has also had a strong quarter, entering the top five, overtaking Sweden and the Netherlands, thanks to Dublin-based tax automation startup Fonoa’s $60m Series B from investors including Index and Coatue.

But while VCs tell Sifted they’re starting to scout more deals in those countries, they’re also hesitant to call these changes a trend — as overall investment amounts have been boosted by a few larger individual rounds.

Although Italian fintech attracted $389 million in the quarter, $315 million of that Satispay’s series D. The country achieved 10 funding rounds in the period, while France had 18, Germany 23 and the UK 58. So while Satispay, Casavo and Scalapay’s hefty rounds are certainly encouraging signs that the country’s fintech scene needs, the data tells us there’s still some way to go go before it catches up with more mature fintech scenes in neighboring countries.

“My hypothesis would be that savvy investors are looking more seriously at ‘untapped’ areas right now because the market has not developed enough to see an increase in prices,” says Ghebremichael.

All eyes on Q4

Across the board, investors tell Sifted they are looking at B2B plays for each fintech sub-sector – where revenue is a safer guarantee as consumers struggle with the skyrocketing cost of living.

“These businesses are business critical (regtech, data infrastructure, financial tracks, risk analysis) and tend to be resilient in recessionary environments,” Jay Wilson, chief investment officer at Albion VC, told Sifted.

“But a key challenge across the fintech universe (even in B2B) is differentiation, as most marketplaces are oversupplied with vendors.”

And we are now reaching a tipping point in Q4 and Q1 in terms of fintech’s runway – all eyes will be on whether companies manage to replenish cash, or start to enter a distress zone.

“It’s going to be a period of real interest because a ton of companies raised funding last year for 18-24 months of runway and haven’t yet had to go out and raise money in this new environment,” says Nick Sando, principal at Octopus Ventures . The charge.

“It will be interesting to see how someone who may have received very high valuations will progress in the new market dynamics. We look forward to supporting some of the businesses we didn’t get the chance to work with in 2021.”

This article uses Dealroom data obtained at the end of the quarter, but there is a slight data lag, meaning that exact amounts may change.

Amy O’Brien is Sifted’s fintech reporter. She writes Sifted’s fintech newsletter and tweets from @Amy_EOBrien.