Here’s how far Fintech funding has fallen

Last year, financial services was the leading sector for venture capital, with at least $131 billion globally going to startups in the space.

This year, the industry is still among the biggest recipients of venture capital funding. However, investment by startups in the space has fallen every quarter this year, with Q4 likely to be the lowest yet.

To get a sense of the funding trajectory, we mapped global investments over the past five calendar quarters.

Even with the sharp year-on-year decline, financial services funding remains high by historical standards. Currently, 2022 is on track to deliver the second highest funding total in the past five years. For perspective, we show totals for investments and rounds below:

Perspective from the public markets

Shifting public market sentiment appears to be a key driver of change in venture appetite for fintech deals.

So far this year, virtually every venture-backed company that took advantage of last year’s wide-open IPO window has come down sharply from the top. This applies to at least 20 companies, listed here, that debuted on US exchanges, including high-profile offerings from Coinbase, Robinhood and SoFi.

In recent quarters, large fintech IPOs have simply not happened. This has many and sometimes different effects on venture funding. On the one hand, without IPOs, we don’t see large pre-IPO rounds. On the other hand, companies that had considered public offerings may instead choose to seek more private financing.

Some of the biggest rounds of the year were actually companies that generated a lot of buzz as potential IPO candidates. This includes Klarna, the buy now pay later platform, which raised $800 million in July after cutting its valuation by 85%.

Early stage funding is also falling

Seed and early-stage investments in fintech and financial services are also sharply down. For some sense, we have mapped funding and the number of agreements for the space in the last six quarters at seed, series A and series B:

At an early stage, some of the recent declines can be attributed to fewer truly large rounds and likely more restraint around valuations.

Last year, for example, FTX raised over $1.4 billion in Series B funding at a peak valuation of $25 billion, per Crunchbase data. This year, we hope that venture investors will refrain from spending that kind of money to work in any company with clear red flags around compliance and corporate governance.

Methodology

The dataset for the funding analysis includes companies categorized by Crunchbase as one of several sectors related to fintech and financial services. Companies included in the results may be entirely focused on financial services or include financial services as a significant focus of their business models. Funding rounds included in the results totaled at least $200,000 and included companies that were founded no more than 20 years before the funding.

Illustration: Dom Guzman