By Sami Yaghma, Updated: Dec 11, 2023
The rapidly growing fintech sector has been a top priority for institutional investors in the past few years, but deal activity has slowed from its 2021 peak as market conditions remain volatile.
Over the past five years, venture capital firms have poured billions into the fintech sector as companies use the internet, blockchain, and other software to compete with services offered by traditional financial methods. As a result, consumers have new capabilities when it comes to their personal banking and finances.
According to PitchBook, the top five most active VC firms in the fintech space since 2017 are:
In the first half of 2022 alone, fintech startups have seen more than $50 billion in funding from VCs.
And while this total isn’t on pace to beat the more than $130 billion that fintech firms collected in venture funding in 2021, it’s still on track to surpass 2020’s totals, even as rising interest rates, inflation, and the Russian invasion of Ukraine have disrupted global markets this year.
In 2021, fintech-devoted venture capitalists honed in on digitalized payment and “buy now, pay later” companies—such as Affirm and Afterpay—because they streamlined user connivence while supporting customer security, according to Forbes.
However, in 2022, VCs have shifted their focus to early-stage deals, targeting startups and smaller fintech firms that can navigate volatile market conditions.
As fintech startup valuations fall at the hands of a strained economic climate, fintech M&A deals have climbed, as larger companies are able to nab smaller firms at discounted prices.
The largest fintech M&A deals this year came in April, when Intercontinental Exchange acquired financial service company Black Knight for $13.5 billion, according to S&P Global. Other notable M&A deals this year include UBS Group’s $1.4 billion deal for Wealthfront and Rêv Worldwide and Searchlight Capital Partners’ $1 billion deal for Netspend’s consumer business. As market confidence remains low, fintech M&A deal count could continue to rise in the coming months.
Some institutional investing executives believe the appetite for fintech deals is still high, even as deal activity has slowed this year.
“Deals do feel a little less competitive, but there are still a lot of capital providers—General Atlantic being one of them—who are excited to continue to invest in great opportunities and back great entrepreneurs”
Paul Stamas – TechCrunch
Paul Stamas, managing partner and co-head of financial services at General Atlantic recently told TechCrunch.
“The environment has caused the pace of a deal to slow down, which, honestly, is probably a good thing. It gives companies and investors more time to get to know one another and perform diligence, in both directions.”
Paul Stamas – TechCrunch
As 2023 approaches, institutional investors could be shifting their priorities when conducting due diligence over potential fintech investments.
VCs could prioritize fintech companies that have a ESG-focused product or service, especially as ESG fund counts continue to rise, according to Forbes. VCs could also look to invest in fintech companies from geographically underdeveloped regions; Latin America, Africa and parts of Europe have already seen an influx in fintech investments.
At Linqto, we offer exclusive equity opportunities in several fintech companies, including Acorns, a financial services company focused on facilitating micro-investing by enabling the investment of aggregated sub-dollar amounts in fractional shares with high frequency and allowing people to save and invest their money. Acorns is projected to generate $309 million in revenue in 2023.