Investors cut fewer deals and signed smaller checks – Tearsheet

After three quarters of consecutive declines in fintech funding, we can safely say that investment activity in 2021 was an outlier. This year, the looming recession and uncertain macroeconomic conditions are making fintech investors more hesitant to sign large checks.

Looking at the current state of fintech funding, startups raised $12.9 billion across 1,160 deals last quarter—a 64% year-over-year (YoY) drop, according to the State of Fintech Q3 Report by CB Insights.

The report showed that while fintech funding returned to 2020 levels, the US continued to lead global funding share by a wide margin. Every fintech category showed a decline, including banking, payments, wealth management, digital lending, capital markets and insurtech. However, insurtech saw the smallest quarterly decline, experiencing only a 4% drop.

Here are the key takeaways, in four charts:

1. Global fintech funding falls to Q4 2020 levels

• The global fintech venture landscape showed a decline for the third consecutive quarter. Fintech raised just $12.9 billion in about 1,100 deals.

• This also marked the weakest quarter since Q4 2020, with a 64% drop in investment year-on-year and a 38% drop quarter-on-quarter.

• The agreements fell slightly from 1,280 in Q2 to 1,160 in Q3. This reflects how investors are still eager to make deals despite cutting smaller checks.

The war in Ukraine, high inflation and rising interest rates are concerns for investors. But looking at the big picture, we can see that although funding and deals showed a sharp drop in 2021, it is only getting back to normal levels. So far this year, funding is around $320 billion, surpassing the total funding we’ve seen in the three years leading up to 2021.

2. The US leads in Q3 funding, followed by Europe and Asia

• The US attracted the most fintech funding, securing $5.1 billion, roughly 40% of global investment. Europe followed with $3.5 billion in fintech funding, and Asia with $3.3 billion.

• However, the US brought in 43% less funding than the previous quarter, making it the lowest point since Q4 2020.

• Despite the drop in investments, the top fintech deal went to Pie Insurance, a US-based Insurtech company, which received $315 million for Series D evaluation.

The report showed that the US continues to lead the global funding share by a wide margin. The number of deals, only slightly down, shows great interest, and perhaps the biggest obstacle to investor confidence is the uncertainty in macroeconomic conditions.

3. Payments funding and deals dominate but fall to 2020 levels

• Payments funding and deals fell to their lowest levels since Q4 2020. The sector managed to raise $3.9 billion across 178 deals.

• Bank funding hit its lowest level since Q4 2018. The sector raised just $1.2 billion, down 86% from all-time highs. However, the number of deals increased from 74 in Q2 to 76 in Q3.

• Insurtech funding remained relatively flat throughout 2022. It saw the smallest QoQ decline of any fintech sector, ticking down 4% from $2.4B to $2.3B. The number of agreements also fell slightly from 143 in Q2 to 140 in Q3.

Overall, all sectors saw a drop in funding to 2020 levels or below. Bank funding saw the biggest drop, down to 2018 levels. However, fintech companies are still receiving significant funding from investors, and funding is still greater than pre-pandemic levels.

4. Coinbase Ventures leads investment rounds

• Coinbase Ventures was the most active fintech investor in Q3, backing 16 fintechs, surpassing Tiger Global Management, which topped the list over the previous two quarters.

• Other highlights in the third quarter included a drop in mega-round funding of $4.4 billion, the lowest level since 2018.

• And finally, an endangered species, fintech unicorn births fell below double digits for the first time since 2020. There were six new unicorns in Q3.

Coinbase Ventures was the most active fintech investor and 1 of only 2 Corporate Venture Capitalists (CVCs) to make the top investor list (along with Kraken Ventures). The report showed that while institutional investors shied away, crypto CVCs doubled down on stakes.