Last year, financial services was the leading sector for venture investment, with at least $131 billion globally going into startups in the space.
This year, the industry still ranks among the largest recipients of venture capital funding. However, investment to startups in the space has been dropping every quarter this year, with Q4 likely to be the lowest yet.
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For a sense of the funding trajectory, we charted out global investment over the past five calendar quarters.
Even with the steep year-over-year decline, financial services funding is still high by historical standards. Currently, 2022 is on track to deliver the second-highest funding total of the past five years. For perspective, we chart out investment and round count totals below:
Perspective from the public markets
Shifting public market sentiment looks like a major driver of change in venture appetite for fintech deals.
So far this year, virtually every venture-backed company that took advantage of the wide-open IPO window last year is down sharply from its peak. This applies to at least 20 companies, listed here, which made debuts on U.S. exchanges, including high-profile offerings from Coinbase, Robinhood and SoFi.
In recent quarters, meanwhile, large fintech IPOs simply haven’t been happening. This has multifold and sometimes differing effects on venture funding. On the one hand, without IPOs, we don’t see big pre-IPO rounds. On the other hand, companies that had been contemplating public offerings might choose instead to seek more private financing.
Some of this year’s biggest rounds, in fact, were companies that generated a lot of buzz as potential IPO candidates. This includes Klarna, the buy now, pay later platform, which raised $800 million in July after cutting its valuation by 85%.
Early-stage funding is falling too
Seed and early-stage fintech and financial services investment is also down sharply. For a sense, we charted out funding and deal count for the space over the past six quarters at seed, Series A and Series B:
At early stage, some of the recent declines can be attributed to the fewer really big rounds and likely more constraint around valuations.
Last year, for instance, FTX raised over $1.4 billion in Series B financing at a peak valuation of $25 billion, per Crunchbase data. This year, we would hope venture investors would refrain from putting that kind of cash to work in any company with clear red flags around compliance and corporate governance.
Methodology
The dataset for the funding analysis includes companies categorized by Crunchbase as one of several sectors tied to fintech and financial services. Companies included in the results may be fully financial services-focused or include financial services as a significant focus of their business models. Funding rounds included in the results totaled at least $200,000 and included companies founded no more than 20 years prior to the funding.
Illustration: Dom Guzman
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- Source: https://news.crunchbase.com/fintech-ecommerce/financial-services-venture-funding-startups-down-2022/