Investors are still betting on fintech despite the market downturn

Investors are apparently throwing money at fintech companies, despite market uncertainty that is forcing startups to fire thousands of employees, cut valuations and even go out of business.

The tech industry has had a lousy start to 2022. After enjoying soaring stock prices, massive exits and massive investment rounds during the pandemic, tech companies have seen their outlook go from bad to worse in the first six months of the year. Tech stocks – such as Alphabet and Apple – have been down since January. At the same time, the cryptocurrency market has crashed and investment advisers have warned that investing in tech stocks is like playing with fire.

There is no shortage of factors contributing to the market decline. Russia’s invasion of Ukraine, the hangover from the pandemic and rising interest rates have all been identified as potential culprits behind the rotten state of tech affairs.

The fintech industry has not been immune to the downturn. The buy-now-pay-later (BNPL) company Klarna provides the clearest example of this. The Swedish fintech held the title of Europe’s most valuable privately held tech venture for a year after achieving a $45.6 billion valuation on the back of a $639 million funding round in June 2021. However, it suffered an $800 million downgrade to a value of 6.7 dollars. billion valuation in July. Klarna also announced in May that it would lay off 10% of its staff, citing deteriorating market conditions as a factor.

The BNPL company is not alone in having announced redundancies. Other fintech companies – such as payment processing startup Bolt and tax credit venture MainStreet – have also announced significant workforce layoffs.

That said, fintech firms like Revolut and Wise are still actively recruiting new employees.

Several fintechs have already collapsed this year. The hyped one-click startup Fast imploded in spectacular fashion in April after trying to drum up support for its services with Nascar sponsorship. Crypto lender Celsius provides another example. The firm filed for bankruptcy after its assets shrank from $25 billion to $167 million due to the crypto crash.

In addition, listed fintechs such as PayPal, Coinbase and Block have struggled on the stock market. Their market values ​​plunged by billions of dollars in recent months. In short, things look pretty bleak.

However, new data from three different sources suggests that investors are still keenly betting on fintech companies. While investment in other industries has slowed, financial sector innovators have so far seen funding on par with record year 2021 levels. But fintech companies still have reason to be concerned.

Investors continue to support fintech ventures

As of July 19, investors had injected $30.1 billion into fintech companies across 983 deals in 2022, according to data from research firm GlobalData. This is less than half or the $84.5 billion invested in the sector across 2,358 deals in 2021. It’s also just shy of the $30.6 billion that investors committed to fintech ventures in 2020 overall.

It would be easy to worry about the fintech industry with this constant “sewer flow” of bad news. However, research from fintech industry body Innovate Finance suggests that things are not as bad as they seem.

Industry mouthpieces suggest investors have pumped $59 billion worth of cash into the fintech industry, which would make year-over-year investment levels flat compared to those seen in 2021. Innovate Finance analyzed 3,046 deals. Innovate Finance estimates that fintech startups had a total of $131 billion worldwide in 2021.

“One thing is clear [amongst all investors]: there is plenty of dry powder to invest,” said Kevin Chong, co-head of Outward VC, in canned remarks. “Although this recovery will be slow. Inflation takes time to fix [so we can expect] it takes a good two years for things to go back to “normal” … VCs are getting pickier and more concentrated. It is [simply] less appetite for growth at any price as in recent years.”

That said, researchers noted some troubling signs in the second quarter. Innovate Finance believes investors filled fintech companies’ coffers to a total of $32.8 billion across 1,754 deals in Q1 2022. That represents a 21% growth from Q1 2021 when $27.1 billion was injected into the sector of 1,795 agreements.

However, in the second quarter of 2022, those figures fell to $26.3 billion, spread across 1,291 deals. That’s also a drop compared to $32.5 billion invested on 1,606 deals in Q2 2021, a 19% decrease in invested capital.

Fintech reigns supreme in Europe

Fintech companies in the US led the funding league, having raised $25.1 billion in the first six months of 2022, according to Innovate Finance. This was followed by the UK ecosystem which raised $9.1 billion. India’s fintech community raised $3.9 billion between January and June.

These figures are reflected in a new report from KPMG. The consultant is new Venture Pulse the report noted that the US still leads the pack in terms of VC investment overall. VC-backed companies, and not just fintechs, raised $120.2 billion in the second quarter through 8,420 deals in the US. In Europe, this figure was 27.3 billion dollars spread over 2,220 agreements.

These funding rounds resulted in 97 new unicorns around the world, with fintechs making up about a third of this number. However, KPMG warned that $1 billion companies could suffer down rounds that could cut their valuations.

“Unicorns valued at exactly $1 billion may consider making significant concessions to investors to retain their unicorn status,” the researchers wrote.

Still, looking specifically at fintech, KPMG said the industry still looks strong and investors are still betting on players in the field.

“Fintech is likely to remain a strong area of ​​investment in many jurisdictions around the world, in addition to supply chain and logistics, cybersecurity and alternative energy,” their researchers wrote.

GlobalData is the parent company of Verdict and its sister publications.