Global fintech sees worst Q1 since 2016 for VC-backed deals

Written by Ruby Hinchliffe
13th May 2020

The first quarter of 2020 has been one of the worst quarters for venture capital (VC)-backed fintech since 2016 in terms of deals, according to a report by CB Insights.

The quarter saw just 404 deals, with total funding ending on $6.1 billion – the worst VC funding quarter for fintech since 2017.

Mega funding rounds – those worth more than $100 million – also stalled globally. With 13 mega funding rounds closed in 2020’s first quarter, totalling to $2.6 billion, the fintech world saw its lowest mega deal count since the second quarter of 2018.

The largest round was Revolut’s $500 million from TCV, followed by Toast’s $400 million, Bakkt’s $300 million, and Klarna and Chime’s $200 million rounds.

The report shows that the lack of funding was in large part down to investors pulling back on early-stage bets to focus on fortifying their portfolios for a forecasted recession.

US VC Sequoia Capital sent a letter to its founders on 7 May warning them to “brace themselves for turbulence” and review whether they have enough cash to last the year.

Currently 67 fintech unicorns exist with collective $252.6bn in value

In Q1 2020, early-stage – seed and Series A – fintechs bagged a collective 228 deals, marking a 13-quarter low in number of deals, and a 9-quarter low in funding which levelled at $1.1 billion.

This dip in deals and funding totals for the fintech world has also meant the number of new unicorns has stagnated. The last quarter had three new unicorns: HighRadius, Pine Labs, and Flywire.

Currently 67 fintech unicorns exist, and they make up a collective $252.6 billion in value.

But whilst fintech unicorns were sparse, merger and acquisition deals in the fintech space were not. Visa’s $5.3 billion acquisition of Plaid, Intuit’s $7.1 billion acquisition of Credit Karma, and SoFi’s $1.2 billion acquisition of Galileo all marked big consolidation plays for some of fintech’s biggest names.

Morgan Stanley’s $13 billion acquisition of E-Trade was also one for the books, as well as a much smaller deal which saw fintech LendingClub buy Radius Bank for $185 million.

CB Insights’ report also highlights that funding for fintechs offering regulation-focused solutions “plummeted”, going from $348 million in Q1 2019 to $121 million in Q1 2020.

But the report suggests that Q2 is already seeing demand for digital identity and fraud solutions. This kicked off with Onfido, an AI-based digital identity verification platform, landing a $100 million investment last month.

And despite a decline in deals, wealth management fintechs have seen funding in them grow 57% quarter-on-quarter, from $268 million in Q4 2019 to $420 million in Q1 2020 – though this is still roughly half of the wealthtech funding raised in Q1 2019.

Interest in debt solutions also seems to be growing. Though lending deals were down $44 million compared to Q1 2019, debt collector fintechs such as TrueAccord, Indebted, re:ceeve, and Ruby Payeur all raised a collective $51 million last quarter.

Start-ups Chipper, edquity and Savi, which offer debt management and emergency loans, all saw traction too, specifically among student borrowers.

Fintech funding in Europe grew 27% last quarter compared with Q4 2019, but deals remained relatively flat at 108, compared with 112 in Q4 2019, and 119 in Q1 2019.