Funding to Venture Capital Backed Fintech Startups Halves in Q2

Amid a tougher climate, investment to VC-backed fintech startups has fallen by 49 percent.

According to the Pulse of Fintech, the quarterly global report on fintech VC trends published jointly by KPMG International and CB Insights, fintech has plateaued in Q2 2016 amid investor concerns about high valuations, a lack of significant IPO exits and macro-economic factors

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49 Percent Decline in Investment

Venture capital-backed fintech companies are reported to have raised $2.5 billion across 195 deals, equating to under half the amount secured in the same quarter last year.

In the second quarter, North America accounted for over half of VC-backed fintech funding but deal activity fell to a five quarter low of 97.

 

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Europe meanwhile saw 43 deals worth $369 million, with Germany outpacing the UK. Asia saw funding of $772 million, down on the previous quarter.

A further trend in Q2 highlighted by the report involves traditional corporations shifting their attention towards co-creation opportunities. A number of larger firms have invested in internal innovation labs or innovation garages in order to bring together fintech companies. Corporations also participated in a five quarter high of 32 percent of all VC-backed fintech deals.

Ian Pollari, global co-leader, fintech, KPMG, commented: “We are seeing a continued diversification across many dimensions of fintech, the growth of different subsectors, the size of organizations participating, the geographic location of fintech companies attracting investment and increasing levels of activity from companies outside of the traditional financial services industry.”

Banks Remain Active in Fintech Investing

However, it was also noted in the report that over the last five quarters, Goldman Sachs, Citigroup and Banco Santander or their venture arms invested in 25 VC-backed fintech companies. Other banks making investments globally across the fintech landscape include HSBC, JPMorgan Chase, and Mitsubishi UFJ Financial Group, indicating that banks are continuing to stay active in fintech investing.

Hence, despite the decline, VC investment in fintech is on pace to exceed 2015 results. Pollari added: “Despite VC backed funding to fintech decreasing in Q2, overall fintech funding remains on track to surpass 2015 levels.Traditional financial institutions and banks of all sizes are realizing that the opportunities associated with fintech aren’t about who has the deepest pockets and so they’re intensifying their innovation efforts.”

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