Global fintech funding totaled $15 billion in the first quarter of this year, up 55% growth from the fourth quarter, according to the latest State of Fintech from CB Insights. report.
While this can generally seem like a win, it’s important to keep a few things in mind. On the one hand, 2020 and 2021 were unique years in which investment in fintech broke records. By comparison, fintech funding promoted to $75.2 billion in all of 202246% less compared to a staggering $131.5 billion raised in 2021. From the first quarter numbers, it is clear that the market is working on a correction.
Second, of the $15 billion raised in the first quarter of this year, $6.5 billion of that was all Stripe. Without that increase, CB Insights said funding would have been $8.5 billion, or a 12% drop in funding from Q4 2022. And third, if we remove the Stripe round and stick with the 8.5 billion dollars, when comparing this quarter with the first quarters of previous years, the financing is the lowest since 2019.
Meanwhile, the number of deals has also decreased. There were 983 transactions in the first quarter, a decrease from 1,007 in the fourth quarter of 2022 and 1,629 in the first quarter of 2022.
One bright spot in the market was “megarounds,” which are deals valued at $100 million or more. These deals accounted for 61% of total funding in the first quarter, a whopping 179% quarter-on-quarter increase across 16 deals and a total of $9.2bn, CB Insights reported. Following the Stripe deal was Rippling, which raised half a billion dollars in mid-March when Silicon Valley Bank was melting down. Notably, the deal count declined, falling 24% quarter-over-quarter.
Early-stage funding continued to dominate in fintech, however, during the first quarter, it hit a new high, accounting for 72% share of the deal in the three-month period, CB Insights reported. Since 2019, that number has been around 60% and has risen to 69% in the first quarter of 2022.
Although the US led all stages during the quarter, it is worth noting that six of the top 10 fintech seed and angel rounds were reversed outside of the US round during the quarter.
Speaking of the US, the region secured $10.5 billion in total funding for the first quarter, which is triple the amount of funding for the fourth quarter of 2022, which was $3.5 billion and, coincidentally, the lowest in five years. The number of deals also rebounded from the fourth quarter, up 23% to 434.
CB Insights notes that excluding the Stripe round (remember that was $6.5bn), the US funding was $4bn and would still have dwarfed Q4. Going deeper into the deal stage, the share of early-stage deals in the US rose to 68%, which is a five-year high, according to CB Insights.
Meanwhile, following a steady decline in funding dollars going to the payments sector, Stripe’s mega-spin helped turn this around with a 200% jump to $8.1 billion in Q1 compared to $2.7 billion in Q1. the fourth quarter of 2022, is slightly down from the $8.3 billion of the first quarter of 2022. Meanwhile, the number of transactions continued its decline, falling to 161, down from 195 in the fourth quarter. That marked the ninth straight decline in trading volume, according to CB Insights. The increase in investment dollars was seen most prominently in early-stage deals, which accounted for 74% of overall deals and a five-year high, up from 66% in 2022.
Other highlights of the report include:
- There was only one unicorn birth in the entire term. This is the first time this has happened since late 2016. The only unicorn born in Q1’23 was Egypt-based MNT-Halan, that at the beginning of February raised $260M in equity financing at a $1B valuation. But overall, according to CB Insights, the total herd of fintech unicorns stood at 314 in Q1 2023, up 11% from the previous year.
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Image Credit: CB Insights
- Fintech M&A Exits he recovered, but not as much as might be expected. They rose 15% qoq to 172 trades. Most of the top M&A deals in the first quarter of 2023 involved fintechs based outside the US. For the first time in the past year, the peak M&A valuation fell below $500 million. Dollars.
- Bank financing fell a whopping 64% qoq to just $500 million in the first quarter of 2023, the lowest total since the second quarter of 2017, when bank financing totaled $300 million. This drop marked the largest quarterly funding drop across any fintech category. Compared to the second quarter 2021 all-time high of $8.2 billion, bank funding dropped a staggering 94% in the first quarter. The deal count also slid, declining 16% qoq and 63% from an all-time high of 139 deals in Q2 2021.
- Total financing for Asia fell 33% quarter-over-quarter to $1.8bn in the first three months of 2023, marking the lowest level since the fourth quarter of 2017. Deals also fell 18% qoq to 195.7 percentage points from year-end 2022 share to reach 78% in Q1, marking a 5-year high. Of the top 10 Asia stock deals, one was for an early-stage startup, Indian insurtech InsuranceDekho, which raised $150 million in February.
- Canada was the only region where the share of late-stage deals fell to 0%. Additionally, financing from Canada held steady at $300 million quarter-over-quarter, while operations declined 44%. Nine of Canada’s top deals in the first quarter were for early-stage companies. Blockchain and cryptocurrency infrastructure firm Blockstream secured the best deal: a $125 million convertible note.
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