“While 2015 marked a banner year for the fintech sector highlighted by newly minted unicorns and increased involvement by financial services giants, Q4’15 saw investment to venture capital-backed fintech companies cool off. VC-backed companies are taking a greater portion of overall industry investment. In 2014, VC-backed companies made up 55% of overall fintech investment dollars. In 2015, VC-backed fintech companies took 73% of overall fintech funding” – says a new report from KPMG International and CB Insights.
Investment in venture capital-backed fintech companies showed a significant increase of 100% and beat a record $13.8 billion in 2015. The number of deals raised from 586 to 653 from the previous year as well. Banks and corporations have contributed to pushing fintech start-up funding to an all-time high.
The report underlines that 1 in 4 U.S. fintech deals was conducted by corporate investors. In 2015 investors seemed to buy into budding start-ups, which increased the value and number of fintech deals. Now even more fintech funding from corporates is expected, according to CB Insights.
“While corporate investors will likely continue to invest in fintech in order to drive their own internal innovation and ability to compete with non-traditional market entrants, some institutional investors may shift away from fintech investing in the short term due to lower perceived rates of return,” the report said.
Private market funding saw a great raise while sector initial public offerings performed quite poorly. The disappointing performance was showed by Lending Club, which appeared on public markets in late 2014, and On Deck Capital, which lends to small businesses. Both companies felt rather confident immediately after their public offering. However, afterwards prices have crashed more than 60 percent each. In 2015 financial services and mobile payment company Square priced its IPO and sold shares below its expected range.
Geographically, North America and Asia has been more active in funding. There have been 351 deals worth $7.4 billion in the USA alone, which makes up a 72% rise comparing to 2014. The funding in Asia reached $4.5 billion across 130 deals thanks to a spike in mega-rounds for firms like One97 and BankBazaar. Besides Chinese giants Alibaba and Tencent make huge contributions in investment.
Europe has made only $1.5 billion in funding, which can be easily explained by the absence of big rounds and less corporate participation like in Asia. In Europe the UK takes a lead thanks to investments in Funding Circle, WorldRemit and others.
Citigroup takes a lead as the most active bank investor over the last few years, followed by Goldman Sachs. “As the level of interest from banks and insurers grows, this will mean there are far more exit strategies,” said Warren Mead, global co-leader of fintech with KPMG International.
However not every fintech company shares the desire to take banks on their board. David Klein, CEO and co-founder of CommonBond, an online student lending platform, says: “We don’t have a big bank as an investor, so it’s hard to say whether they’d be a good investor or not. I do think it’s telling that one big bank’s venture and innovation arm wanted to invest in our company but had to pull out for ‘regulatory reasons’ — a sign, I think, of how difficult it is for banks to innovate, even if they wanted to.”