Although major FinTech companies were beneficiaries of hefty investments over the last few months, the overall investment trend is significantly slowing down, according to a new State Of Fintech report. COVID-19 may be the primary cause, but other factors have contributed as well.
Lagging Before the Storm
Just in the last month, a number of major investments have been seen:
Combined with the stimulus package, and its Paycheck Protection Program (PPP), one could easily assume that FinTech is the industry sector least affected by the coronavirus economic fallout. After all, online services gained a considerable traffic boost, just as road traffic was decimated.
Adding to this image of unscathed FinTech vitality are huge deals planned long before the crisis, but occurring this year. Among them is Visa absorbing Plaid for $5.3 billion and CreditKarma making a $7.1 billion deal with Intuit.
Unfortunately, with the unprecedented crisis as big as this one, even sectors least affected will still have to endure some degree of hardship. Although largely based and dependent on online technology, FinTech is not an isolated financial ecosystem. As the nation’s economy shrinks, so does the purchasing power across the board.
FinTech’s Venture Capital Shrinkage in Q1 2020
CB Insights’ report for this year’s first quarter portrays the current state of FinTech investments as bleak, to say the least. The report notes the worst FinTech financing levels since Q1 2016 for FinTech deals, and Q1 2017 for FinTech startup funding. In short, FinTech funding dropped to $6.1 billion, accounting for 404 deals.
As experts project recession, if not outright depression, VC investors are now looking to brace for the economic storm. Therefore, they are consolidating existing portfolios that show resilience and continued demand in the near future. Additionally, due to FinTech’s high-degree of diversity, many startups will be viewed as luxuries in harsh times like this, and are likely to be left behind.
Q1 2020 already shows only 228 deals for FinTech startups, which is a 13-quarter low. As America endures, the rest of the world will not fare any better, as Q1 2020 also shows a 69% funding drop in Asia. Europe is the exception for the moment, but only due to several major funding deals, such as Revolut’s $500 million series D and Qonto’s $115 million Series C.
Do you foresee additional stimulus packages making a difference? For how long can the Fed print money out of thin air without any consequences? We want to know what you think in the comments section below.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.