Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
If you just read the headlines, you’d be excused for thinking that venture capital investment into financial-technology companies is at an all-time high.
Big deals this year like Plaid’s $5.3 billion dollar exit to Visa, Galileo’s $1.2 billion sale to SoFi, along with CreditKarma’s $7.1 billion deal with Intuit made for a tidy start to 2020. But despite the later-stages of fintech-focused startups seeing healthy amounts of liquidity, aggregate venture capital activity in the historically well-funded sector was light in the first quarter of 2020.
According to a new Q1 2020 report covering venture data from CB Insights, VC dollars invested in the sector fell to levels not seen since 2017, while venture deal volume in fintech fell to 2016 levels. There are any number of reasons for this pullback that you can fill in, including COVID-19 and its resulting economic impacts. But what’s even more interesting is where the money and deals did and did not go inside of the various fintech categories.
Indeed, fintech has become so complicated as a startup grouping, it’s nearly as diffuse as discussing “SaaS” companies as a cohort. Of course, fintech is a product focus while SaaS is a business model (there are fintechs that sell SaaS, to be clear), but the general point holds.
Let’s dig into the top-line data to better understand the fintech funding landscape in Q1 (TechCrunch recently spoke to VCs on their expectations for the sector today and in the future). After the high-level stuff, we’ll dig into a few notes concerning sub-sectors of particular interest, including wealth management and insurtech.
Fintech’s Q1 venture scorecard
According to the data from CB Insights, a hair under $6.1 billion worth of venture capital was invested into fintech startups across the globe in Q1. That is not a small sum on an absolute basis — there are startup sectors that would kill for that level of investment — but in historical, comparative terms, it’s unimpressive.
Every single quarter in 2018 and 2019 saw a greater total sum of venture capital investment into fintech startups. 2019 did not feature a quarter under the $7 billion mark, for example, making the most recent quarter seem rather slim. Q1 2020’s $6.1 billion bests Q4 2017’s result in terms of VC investment into fintech startups, and all quarters between that period and Q2 2016.
However, while we have to go back to 2017 to find a worse quarter in dollar terms, we must rewind to 2016 to find a weaker quarter for global venture capital deal volume for fintech startups. According to the report, fintech startups saw just 404 deals in Q1 2020. That’s down from 500 in Q4 2019 and an average of around 508 per quarter in the year.
Inside those figures was a slowdown in early-stage investment. Seed, angel and Series A fintech deals fell to 228 across the globe in Q1 2020—the lowest deal count since Q4 2016, the only quarter to feature fewer early-stage deals since at least the start of that year. Early-stage global venture dollar volume into fintech startups was better, losing out to quarterly totals in all of 2018 and 2019, but coming in better than most periods in 2017, totalling $1.1 billion in the first quarter of this year.
Finally, European fintech venture deals were down a little from their 2019 average in Q1 2020, while Asian and North American fintech deals posted sharper declines compared to historical results.
There’s always more data to chew on, but the above data points provide the context we need: Global venture interest in fintech slowed in Q1 2020. If the declines are sufficient to trigger fear, I do not know. Q2 numbers should prove more dramatic, in either a return to form or in the shape of further declines. If the declines continue, then concern amidst operators in the space might be warranted. How many fintech unicorns could survive without more private capital isn’t known, but the number also isn’t likely too high.
The market is giving off some positive signs. Savings and investing apps, to pick one example, are doing very well as consumers flock to their services to better save and invest their capital. Given that, let’s take a look at two key fintech categories to see how they performed in Q1 2020, starting with wealth management.
Wealthtech and insurance are both down
Quarterly funding trends for sub-sectors are a bit up and down. As we’re looking at a smaller cut of companies, individual rounds can introduce more variance than in broader cohorts.
To get a better picture, then, let’s average the wealthtech category venture capital quarterly data from 2019 and compare it to 2020’s Q1 results, instead of comparing the most recent quarter to a single period from last year:
- 50 deals worth $577 million quarterly, on average in 2019
- 27 deals worth $420 million in Q1 2020
So things were slower in the category in the first quarter of this year compared to 2019, though it’s worth noting that Q4 2019’s dollar total — VC investment into wealthtech companies came to just $268 globally in the period — was minute, making Q1 2020 a rebound of sorts in dollar volume. Deal volume in Q1 2020, however, was the worst since at least 2019.
Insurtech didn’t do much better. The category saw flat deal volume in Q1 from Q4 2019, but the figure was lower than every other quarter of 2019 at 59 deals to start 2020. And dollar volume was off mightily from Q1 2019, around 49.5%. Q1 2020’s 18% dip in deal volume was nothing in comparison to the dollar drought that hit insurtech in the period.
Thinking back to the top-line figures, it’s not a shock to see weakness in subcategories of fintech. But as with the Q1 earnings cycle, looking backwards when it’s Q2 that will feature three full months of COVID-19 impacts, it does feel somewhat like we’re looking back at a different world than the one we live in.
So, Q1 data is illustrative in that we can see a decline in fintech venture activity heading into the real maw of the COVID-19 era; what matters next is what the myriad companies in the sector and their backers do now.
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