As venture capital grew around the world, tracking the fintech market was a fine way to understand the general health of the VC world; when venture was getting bigger, so too was fintech fundraising.
Worth around a fifth of all venture dollars invested last year, fintech startups raised nearly unfathomable sums of capital but with good reason. While companies around the world turned to software during the pandemic to ensure that they could keep operating, accelerating the digital transformation, there has been analogous work going on in the consumer world.
In simple terms, financial technology has been busy digitizing consumers’ lives in recent years, just as enterprise software helped corporations ditch pencils, paper and generic spreadsheets. So it is not a huge surprise that fintech had a big part to play in the venture boom that is now behind us. Nor that as the boom faded, fintech did as well.
New Q2 2022 data from CB Insights and PitchBook lay bare fintech’s retreat.
Let’s talk about the fintech market from a global perspective and a U.S.-focused viewpoint. What’s really going on out there?
The global perspective
Global venture funding reached $108.5 billion in the second quarter of 2022, according to CB Insights. Global fintech funding fell 33% to $20.4 billion across 1,225 deals in Q2 compared to Q1 2022. It’s also down nearly 46% compared to the $37.6 billion raised across 1,287 deals in Q2 2021. Despite the declines, investment into fintech startups globally accounted for 18.8% — again around one-fifth, or one in every five — of all venture dollars invested in the second quarter of 2022.
To keep things in perspective, funding flowing into fintechs in Q2 of this year was 68.6% higher than the $12.1 billion invested in Q2 2020.
The biggest equity deal of the quarter, per CB Insights, was Singapore’s Coda Payments, which raised a $690 million Series C and accounted for 3.4% of total aggregate funding. Coda is followed by two American startups in the ranking: Velocity Global and Circle, which each raised a $400 million round. Investors in the aforementioned deals include Insight Partners, Norwest Venture Partners, Smash Ventures, Fin Capital and BlackRock.
Unsurprisingly given the general climate, all major regions saw fintech funding fall in the second quarter. The U.S. continued to dominate, accounting for 38% of all fintech deals in the second quarter — the exact same percentage as the first three quarters of 2021. Asia came in next, with 24% of the deals, and Europe a close third with 23%.
Early-stage deals continued to account for the majority of fintech raises so far this year — 65%, to be exact, just as in all of 2021.
In the second quarter, a mere 20 fintech unicorns were born — representing a six-quarter low and down 58.3% from the 48 born in the second quarter of 2021.
Meanwhile, consolidation continued to take place in the first half of 2022. Fintech accounted for 47% of 2021’s total M&A exit count, totaling 438, though that figure was down 30% from the first quarter.
Notably and unsurprisingly considering the state of the public markets, just 16 companies went public via an IPO in H1 2022, compared to 77 in all of last year. Only five companies went public via a SPAC (special purpose acquisition company) in the first half of the year, versus 19 in all of 2021.
The layoff story
The exit market gives us a directional understanding of why some private-stage startups are seeking a more sustainable future. And unfortunately, that’s come at a cost to their workforce in recent months.
Multiple data sources tell TechCrunch that fintech is the leading sector in the startup workforce reduction world, too. Trueup, a tech recruitment platform that tracks layoffs, claims that over 117 unicorns have announced layoffs since the start of 2022. Of that cohort, the sector with the most layoffs is fintech followed by crypto and real estate.
Notable fintech layoffs in the recent weeks include Amount, which cut 18% of staff after landing a $1 billion valuation just one year prior; MainStreet, which cut 30% of staff weeks before pursuing a potential recapitalization; On Deck, which cut 25% and scaled back its accelerator program; and Klarna, which cut 10% of its workforce before seeking funding at a lower valuation.
The fall hurts harder because of the rise. In March 2020, fintech startups did execute layoffs but lagged behind transportation and travel categories when it came to layoffs as a percentage of the total, an analysis from Layoffs.fyi reports. Today, fintech and crypto may be having more publicly known layoffs because of the high rate of capital that poured into the space during the last few years. Every startup is a fintech, the joke goes, so the sheer volume could be why the pullback in staffing has proved so dramatic.
The Layoffs.fyi study indicates that 4,189 fintech employees were let go across 45 events in the first half of 2022; this number is out of 46,740 startup employees laid off overall, making up 11.2% of the total. That compares to 8,375 in the first half of 2020 at the onset of the COVID-19 pandemic.
What about the United States?
Narrowing our focus to merely the U.S. market, what can we see? Much of the same, for many similar reasons. Just as fintech is so large a venture category that we expect the wider VC market to loosely track what happens in fintech, so too is the United States so critical a market for venture dollars that it partially drives global results. If the world is down, there’s a good chance that the United States is partially to blame, at least in venture capital terms.
PitchBook counts 993 fintech deals in the United States worth $24.0 billion so far in 2022. That’s after 2,034 deals in the fintech category last year were worth $55.8 billion. Given that Q2 has generally underperformed Q1, we should not merely double H1 fintech results to get a vibe for where the year will wind up.
This year will be far more muted for fintech investment in the United States. But it’s still on track to crush 2020’s results. So, as with the global market, we’re seeing a comedown, but not a whole-cloth retreat; things are still more active in capital terms in the fintech world now than they were two years ago.
Now that we better understand the slowdown, both at home and abroad, we have further questions. What impact does a decline in fintech funding have on spending, for example? As fintech funding slows, does fintech marketing spend slow as well? And does that help fintech startups control their customer acquisition costs? Do we see more M&A? The year thus far makes us think that the answer to each of those questions is yes, but we’re far from fully confident in our prognostications given that 2022 has been nothing short of a surprise.
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