How will fintech startups fare in 2022? Not bad.

Takes stock of fintech startups

Rising interest rates and inflation continue to rock fintech and, along with it, VC investment in the sector. PitchBook shared a sneak peek of its upcoming second-quarter fintech report with us, and it shows that investing in private companies hasn’t been immune to the forces destroying public company valuations. But the data also reveals a more nuanced picture of what is happening to fintech startups.

Think evolution, not apocalypse. If you only read Twitter, you might think venture capital funding was frozen. In reality, VC firms cut about the same amount of checks, but with smaller dollar figures.

• Fintech companies raised about $29.3 billion in 1,233 deals in the first quarter, and about $21.1 billion in 1,227 deals in the second quarter.
• Many VCs say they move to investing at an earlier stage. And early-stage investors consider investments with a potential recession in mind. “We evaluate newer companies in terms of how agile they are and how they plan to operate in this market over the next couple of years,” said Flourish Ventures managing partner Emmalyn Shaw.
• According to PitchBook, the median angel or seed deal jumped from $2 million in 2021 to $3 million this year. Meanwhile, growth stage rounds were basically flat, falling from $20.2 million in 2021 to $20 million in 2022.

Fintech investments remain high. 2021 may have been an anomaly, with $121.6 billion raised, but 2022 investment in the sector remains historically strong.

• In all of 2020, fintech companies raised $47.9 billion, about $2.5 billion less than the total in the first half of 2022.
• Exits, however, are another issue. Fintech companies netted nearly $332 billion from blockbuster IPOs and other deals in 2021, according to PitchBook. By 2022, the IPO window has largely closed, and public companies with declining valuations have less inventory to splash around on deals. Exit values ​​for the first half of 2022 were around $13.3 billion. By comparison, exit values ​​in 2020 were around 37.6 billion dollars.
• That’s another reason why early-stage deals are more attractive than late-stage deals right now, as the smaller, younger companies can wait out current market conditions.

The global game is changing. Until 2020, most of the largest fintech venture capital deals were in China. Now the offers are diversifying across Europe and Latin America.

• China’s shifting policies on technology and private sector investment, combined with industrial uncertainty due to shutdowns, have cooled venture investment in the country. Although Sequoia China just closed a $9 billion fund, it’s an outlier. Smaller firms including Genesis Capital, Centurium Capital and Xiang He Capital are struggling to raise funds, the Financial Times reports.
• Meanwhile, Latin America has become a testing ground for neobanks, cross-border payments and other technology-enabled financial services designed to serve a young, growing and relatively underbanked population. Trend investors call it the “LatAm thesis.”
• European companies have also received more checks in recent years. Rounds for Checkout.com, Trade Republic and Klarna helped boost the European figures in PitchBook’s data.

There are other findings in PitchBook’s data, which will be released in a full report next month. Investments appear to be moving away from consumer-facing products, after sky-high valuations for categories of businesses such as “buy now, pay later” fell to surprise lows. More investment is going into business-to-business payments, however. The type of fintech that will garner investment in 2022 looks different than a successful fintech a year ago. But there is still a lot of money in the money business.

— Veronica Irwin (e-mail | twitter), with reporting contributed by AJ Caughey