Fintech VC sets records in Q4 despite early-stage slowdown

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Fintech is what you hear about constantly, but probably aren’t as read up on as you’d like to be. Neither am I.

Luckily we have a new report concerning fintech investing to unpack and explore. Thanks to a dataset from startup and venture data provider CB Insights, we have a fresh, deep look into the world of startup fintech investment. 

Here’s what we want to know:

  • Did fintech venture activity rise in 2019?
  • How are the various venture stages of fintech investing performing
  • Are early-stage fintech startups able to attract capital at similar velocity to their much-lauded, late-stage counterparts?

Let’s find out!

2019: A (near) record

According to CB Insights, there were 1,913 fintech deals in 2019, worth a total of $34.5 billion. Those results made 2019 the second-best year on record in terms of deal and dollar volume for fintech investing. Yet 2018 managed to crest 2019 on both venture count and dollar volume, with 2,049 rounds and $40.8 billion in capital invested in fintech companies. However, if you take out the 2018-era $14 billion Ant Financial round — hardly a venture-style round — 2019 scoots comfortably ahead in terms of dollars raised for fintech startups. And whether or not you think it’s fair to include Ant Financial’s round, 2019 was a strong year for fintech startups around the world.

Even more, Q4 2019 was a standout period. Discounting the single quarter in which Ant raised, it was the most active quarter on record in terms of dollars invested. Here’s a chart from the report (shared with permission):

Either Q4 2019 was a record quarter —or a distant second-place event — depending on how you want to count.

But something that can’t be taken away was the strength of the final three quarters of 2019: they were effective ties, with each three-month period seeing over $9 billion in capital invested into fintech startups around the globe. For context, that’s around the total value of the domestic Chinese venture capital market invested into a single startup sector.

This is why fintech has felt so active lately; it has been. Answering our first question about the state of fintech investing in 2019, and whether the data matches how hot the sector felt last year, the answer is yes.

Dollars v. Rounds

While it is true that, in dollar-terms, 2019 was a bang-up year for fintech investing, the total number of deals in the category was a bit low in aggregate and sharply lower in the earlier-stages.

The data is simple to understand: With 452 total global fintech rounds in Q4 2019, according to CB Insights, the category was essentially tied with Q2 2019 for the lowest number of deals since Q4 2017. Gone are the days when there were more than 500 fintech rounds per quarter, as in much of 2018.

Per the data and analysis company:

Still, that’s not so bad; deal volume is still elevated compared to what was seen in 2015 and 2016 and 2017, right? Sure, but when we drill into the data, hunting for deals made with younger startups, the slowdown is a bit sharper. Counting angel, seed, and Series A deals into fintech companies globally, a round count of 253 in Q4 2019 was the lowest since Q4 2016.

This means that nearly half of the deals struck in fintech in 2019 were for Series B rounds and later. This helps explain why fintech felt so noisy in 2019; larger, later rounds tend to land with with greater impact and make more noise. You notice them more frequently. Given the percent of later-stage rounds that fintech was cutting each quarterly, and their summed dollar totals, it’s no surprise that it felt like it was a fintech-heavy year in 2019.

Answering our second question, while early-stage fintech companies did raise a few more rounds than later-stage counterparts, the near-balance between early and late rounds in the category feels imbalanced in favor of the more mature startups. And when we compare the dollars invested, there’s no contest. Using arithmetic, here’s how the balance broke down for the past few quarters:

  • Q1 2019: Early-stage fintechs raised $1.454 billion, or 20.5% of total capital raised by startups in the category
  • Q2 2019: Early-stage fintechs raised $1.627 billion, or 17.8% of total capital raised by startups in the category
  • Q3 2019: Early-stage fintechs raised $1.042 billion, or 11.7% of total capital raised by startups in the category
  • Q4 2019: Early-stage fintechs raised $1.165 billion, or 12.4% of total capital raised by startups in the category

That’s quite a drop.

So while it appears that there is ample capital available for later-stage fintech companies around the world, early-stage funding looks like it’s losing some ground in deal terms (as we saw before) and dollar terms (in both comparative, and absolute terms). Heck, the last two quarters of 2019 saw early-stage fintech investing drop to its lowest dollars totals since the last two quarters of 2017.

So the rich get richer, and the younger lose ground. Fintech is now aping the millennial market it’s trying so hard to break into. And they say imitation is the sincerest form of flattery!