The decline in fintech funding is a correction, not a retreat

All global markets took a hit in 2022, and the fintech industry was no exception. After coming down from peaks in 2021, fintech VC funding declined for four consecutive quarters. Amid falling valuations and layoffs, fintechs also faced inflation and an uncertain economic climate.

Still, CB Insights lead fintech analyst Anisha Kothapa insists VCs are not pulling back from the industry. Instead, they simply sign smaller checks. VCs are looking for profit rather than high burn rate growth.

Here are the key takeaways from the State of Fintech 2022 report in four charts:

1. Decline in fintech funding is not a retreat, but a correction

• Global fintech funding reached $75.2 billion in 2022, down 46% year-over-year.
• However, total funding for 2022 was up 52% ​​compared to the $49.3 billion raised in 2020.
• The number of agreements concluded fell slightly from 5,474 to 5,048 – which marks a decrease of 8%.
• However, the number of deals made in 2022 increased by 37% compared to 2020, reinforcing the idea that funding is not fleeing the fintech industry.

With VCs focused on making smaller calculated bets, fintechs raised less money in 2022 than in 2021. The median late-stage deal size was halved year over year, falling to $45.5 million from a peak of 91, 3 million dollars in 2021.

2. The US continues to lead in fintech funding and deals

• The US continued to lead in funding and deals compared to other regions. It raised $3.9 billion in Q4 2022, accounting for 36% of all global fintech funding.
• Europe came in second with $2.8 billion, and Asia came in third with $2.7 billion collected.
• Funding to Latin America and Caribbean-based fintechs fell 71% from $13.9 billion in 2021 to $4 billion in 2022. However, the number of deals made fell by only 5%.

Mega rounds ($100 million and up) fell across all regions. Asia and Europe surpassed the US in total Mega-round funding, raising $1.4 billion each. And the US managed to raise $1.1 billion.

3. The payment sector dominates

• Payments managed to raise $3.4 billion across 188 deals in the fourth quarter of 2022. Although the funding rate was down from $3.9 billion in the previous quarter, the number of deals made increased by 5%
• The banking sector rebounded slightly, adding $1.8 billion in the 4th quarter, compared to $1.2 billion in the 3rd quarter. However, the number of agreements decreased from 76 in Q3 to 62 in Q4.
• Insurtech funding remained relatively flat throughout 2022. It saw the smallest quarter-on-quarter decline of any fintech sector, ticking down 4% from $2.4 billion to $2.3 billion. 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, funding is still greater than pre-pandemic levels.

4. Polychain Capital leads US investment rounds

• Polychain Capital was the most active fintech investor in Q4, backing 8 fintechs and surpassing Coinbase Ventures, which topped the list last quarter.
• Other notable investors include Andreessen Horowitz with 7 deals, Circle Ventures and Coinbase Ventures each backing 6 startups.
• Uniswap, an Ethereum-based protocol and decentralized exchange, raised the highest amount ($165 million) at a valuation of $1.7 billion.

According to Kothopa, 2022 was a very eventful year for Venture Capital – filled with bankruptcies, value cuts and layoffs. That said, 2021 was an extreme year and not a good benchmark to evaluate fintech capital funding.