Fintech funding saw a dramatic decline in 2016 as investors were likely unsettled by uncertainty triggered by the Brexit vote followed by the US elections, according to KPMG and CB Insights.
Global VC fintech funding reached $25 billion in 2016, down 50 percent from $47 billion in 2015. The number of deals also fell significantly, making 2016 the first year in which VC fintech investment fails to reach the previous year’s total.
European funding volumes declined dramatically. Fintech firms in Europe attracted only $2.2 billion in VC investment in 2016, down 80 percent from $10.9 billion in 2015. Within Europe, Germany continued to thrive, outstripping the UK which saw deal value down from $4.6 billion to $654 million, although transaction volume remained steady.
Investors are likely still put off the UK as uncertainty over the Brexit continues, while other parts of Europe may also be less attractive as more elections loom. However, KPMG says that London continues to be seen as a true global financial centre with a vibrant tech startup sector.
“Overall, 2016 was a challenging year for fintech investment. The Brexit vote in the UK and ramifications associated with its outcome. The US presidential election, a perceived slowdown in China and significant fluctuations in the exchange rate globally prompted investors to be more cautious,” the report further states.
Asian fintech funding bucked the overall trend
US funding volumes have also diminished at all stages. Fintech VCs raised $12.8 billion over 489 deals last year, also down 55 percent from $27 billion in 2015, which was spread over 615 deals. Nonetheless, KPMG thinks that investment will pick up in 2017 as the prolonged uncertainty over the presidential election is now over.
The lack of major political events in Asian countries like China and India, relative to Europe and the US, was one of the reasons that Asian fintech funding bucked the overall trend. Funding volume in China increased in 2016, with deal funding reaching a new record high of $8.6 billion compared to $8.4 billion in 2015.
Commenting on the results, Brian Hughes from KPMG LLP said: “2017 is likely to be a pivotal year for fintech in the US and around the world.Because valuations have corrected, the market has set up a perfect storm for IPOs and M&A to happen in 2017. An increasing number of exits will likely stimulate demand for new investments thanks to the dry powder already in the market.”