Fintech Report 2023: Venture capital Funding for Fintech and Crypto Startups Collapses

The State of Fintech 2024 report, co-authored by Dealroom, Motive Ventures and ABN Amro, highlights the current state of fintech companies in Europe and the US. The report shows that the industry has experienced a significant reduction in VC investment. In 2023, VC investments in fintech startups reached just $42 billion, down 63 percent from the previous year.

According to the report, the US performed slightly better, with a 45 percent decline in investment, than Europe, which saw a 66 percent decline. Seed and Series A rounds have held up best, according to the report, even though they have fallen 60 percent since the 2022 peak.

A study by PwC for the German market shows a similar trend, recording a 40 percent decline in VC transactions compared to 2022. Given a more difficult environment for exits and IPOs, 76 percent of venture capitalists are now placing greater emphasis on capital-efficient and sustainable business models.

The slump is also reflected in the number of so-called fintech unicorns, i.e. start-up companies that are valued at over a billion US dollars and are not listed on the stock exchange. While 148 such unicorns were counted in 2021, only eight fintech companies achieved this status in 2023, according to the report.

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Crypto and DeFi record 84 percent decline

The report highlights that the crypto and decentralized finance (DeFi) space in particular experienced a significant decline in investments. In 2023, investments in this sector amounted to just $2.4 billion, an 84 percent decline compared to the previous year.

The banking sector was also hit hard, with funding down 71 percent, with total investment reaching $2.1 billion in 2023. In contrast, the payments area received the highest investments at $11.4 billion in 2023, although the decline here was comparatively small at 15 percent.

Hardly any fintech IPOs in 2023

A key challenge, according to the report, is that despite a high private value of fintech companies founded in the US and Europe since 2000 (US$2 billion, of which 66 percent are still private), public IPOs have almost stopped have come to a standstill, limiting exit options for investors.

Despite this, there are a number of fintech companies waiting to go public in the next two years, according to the report. Another factor that could discourage investors from investing in young fintech companies is the fact that new public fintech companies often do not meet the so-called “Rule of 40”, which requires the sum of growth rate and profit margin to be above 40. In addition, most new market participants are valued on average at a valuation discount of 3.4 times compared to established companies.

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(Featured image by stevepb via Pixabay)

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