According to the 2019 Global Fintech Funding Report by HexGn, Fintech has continued as the top sector for startup funding in 2019. The sector was also at the top in 2018. This was despite a dip in funding for this sector, to the tune of $12 billion from 2018. It attracted $46.5 billion in funding in 2019 compared to $58.4 billion in 2018. Although the funding dropped by 20% from its 2018 number, FinTech had a very strong year.
The sector was among the top 3 sectors in North America & Asia and was the top sector in Europe and the rest of the world (South America, Oceania & Africa) combined.
In terms of deals it had the third highest number of deals across sectors, the top being Health & MedTech followed by Software & SaaS. The total number of deals in 2018 was 2,894, which dropped to 2,438 in 2019 a fall of 17%. This meant that the average deal size dropped from a high of $28 million per deal to $26 million in 2019, says Global Fintech Funding Report by HexGn.
However, the fall in deal size was less than that for the other top sectors. One does have to point out the abnormally large fund raise by, Alibaba backed, Ant Financial in 2018 of $14 billion, which is increasingly looking like a one hit wonder. If we remove that FinTech looks like it is on a really strong wicket.
According to 2019 Global Fintech Funding Report by HexGn, FinTech maintained or strengthened its position as the sector of choice in most regions except for Asia. FinTech had a very strong growth in North America and Europe. While Norther America saw the funding increase by 40%, Europe saw funding in this sector increase by 44%. The funding in Asia dropped by a massive 68% and the rest of the world saw a slight increase of 2%.
In 2018 Asia attracted the bulk of funding in FinTech at $32 billion, constituting 55% of all funding in FinTech across the globe. However, in 2019 the sector received just a little over $10 billion, registering a fall of over 22 billion in just one year. The number of FinTech deals fell by only 23%.
In North America, where funding grew by a healthy 40%, the sector attracted $22 billion in 2019 compared to $ 16 billion in 2018. The number of deals in this region fell by over 23%, the same % as in Asia, over the same period. Europe saw funding in FinTech increase from $8.5 billion to $12 billion, from 2018 to 2019. Number of deals fell by 5% in Europe which shows the overall strength of FinTech in Europe, says Global Fintech Funding Report by HexGn.
The rest of the world saw funding nearly unchanged, increasing from $2.2 billion to $2.3 billion and bucking the overall trend, the deals too registered a slight increase, although this came over a much lower base.
According to the 2019 Global Fintech Funding Report by HexGn, Asia still had the highest average deal size in FinTech at $26 million (down from a mind-boggling $66 million, followed by North America at $25 million (Up from $18 million), Europe came next with $21 million (Up from $14 million). The rest of the world has an average of $14 million (down from $16 million)
Most of the deals do not disclose the stage of funding and at times it can be very confusing to figure it out and draw a picture from it. We have broken down each category of funding disclosed and sorted them on the basis of average deal size.
For simplicity we have categorized deals with average size less than $3 million as going into startup formation and validation of business idea or Seed/Angel funding. Categories falling between $3 million and $30 million are categorized as Early stage funding and we have surmised goes into growth and customer acquisition. Any category above where the average deal size exceeds $30 million is categorized as late stage and is for market expansion or Pre-IPO preparations. While there are exceptions in each category, the purpose is to provide trends rather than hard numbers for reporting.
Funding across all stages fell in 2019 on the back of a fall in the total funding in this sector. However, there were divergences in the different stages.
According to Global Fintech Funding Report by HexGn, out of the total $12 billion fall in funding late stage funding contributed to $6.5 billion of this, Early Stage contributed $5.3 billion and Seed/Angel only $181 million. In terms of % drop Late stage fell by 18%, early stage by 25% and Seed/Angel by just 13% compared to the total fall of 20% for FinTech sector as a whole.
To provide more perspective since late stage funding constitutes over 60% of the funding in this sector, this stage will be more representative of the overall funding. One does have to look closer to realize that these number do not tell the whole story.
In 2018, Ant Financial raised $14 billion in a single deal. This was by far the biggest deal in 2018 as well. If we consider this as an anomaly given that it was on the back of a lending model for its suppliers and we will not see many deals like this anytime in the future, we see that Late Stage deals actually performed way better than the numbers show. This can also be seen in the surge of number of late deals by 39%, says 2019 Global Fintech Funding Report by HexGn.
If we remove $14 billion Ant Financial deal from the equation altogether, late stage funding actually increased by $7.5 billion or 35%. The biggest weakness is in early stage deals where the number of deals reduced by 21%.
This trend is further corroborated by an increase in the number of deals over $100 million which rose from 94 to 114 in 2019. We did not see any increase in average deal size of particular categories like Series A, Series B to suggest a shift in funding patterns across stages.
One could argue a case for liquidity flow from exits to funding in new startups or a case of saturation. Given the healthy IPOs that FinTech companies can provide due to their inherent profitability models, it could point to a larger issue with differentiation. Technology adoption can happen at any stage of the company and is no longer a differentiating factor for newer FinTech companies compared to older ones.
As per the 2019 Global Fintech Funding Report by HexGn, we will see a trend towards exploring new markets like Small business loans, credit to underserved retail customers which could take time to develop and mature. Transactions/wallet models seem to have hit a ceiling.
According to the 2019 Global Fintech Funding Report by HexGn, United States saw startup funding in the FinTech sector reach $21 billion in 2019. In absolute terms this is an increase of over $6 billion from the $15 billion in 2018. In percentage this represents an increase of 42% over the 2018 funding figures. However, number of deals declined by 24%.
In 2018, there were 41 startups that raised over $100 million in funding, 2019 saw a total 49 startups raise more than that. This does not show the complete picture as can be seen by another set of figures. In 2018, there were a total of 40 deals over $100 million and in 2019 there were a total of 58 deals over $100 million. The faster growing ones raised more money in 2019 than in 2018. This was not the only change. In 2018 a total of 14 debt financing deals were made by companies raising over $100 million in a single deal totaling a little over $2.3 billion, says 2019 Global Fintech Funding Report by HexGn.
In 2019 this same figure jumped to 21 deals totaling to $6.6 billion. Companies increasingly looked to raise debt, providing a clear indication on a clarity on the profitability model. Owing to the IPO woes in other sectors, there is a perceptible shift in startups and especially FinTech firms which have a clear profitability model. This could also be the reason for the shift in the type of companies which raised the maximum.
According to the 2019 Global Fintech Funding Report by HexGn, In 2018 there were 2 insurance FinTech companies in top 10 fund raisers in this sector in the US, in 2019 there were 3. In 2018 there was just 1 company from Lending & Finance, in 2019 there were 4. 2018 had 2 cryptocurrency startups in the top 10, in 2019 there were none. 2019 also saw Chime a challenger Bank raise $700 million over 2 deals. Therefore, the thrust towards interest spreads and profitability was more than clear in spite of the cash burn. Which further supports our view of Lending & Finance and underserved consumers emerging as the growth area for FinTech firms. The US funding scenario just provided further proof of this shift.
According to the 2019 Global Fintech Funding Report by HexGn, funding in FinTech startups in the United Kingdom saw a 51% increase from 2018 to 2019. Funding rose from $5 billion to $7.5 billion, a rise of $2.5 billion. Deals also rose at a mild 1% during this period.
United Kingdom has always been a financial center for the world and a gateway for companies to access the European union.
Brexit seems to hold no meaning when it comes to FinTech sector in the UK with money continuing to pour into this sector. One aspect of this nimble footedness of UK FinTech companies can be seen with the emergence of Transfer & payments firms to manage and receive cross border payments. Probably in response to what is to come after Brexit. However, unlike the US where investors dallied with Crypto currency in 2018 only to shift focus in 2019.
UK has seen Lending & Finance companies garner the top dollars both in 2018 and 2019 along with Challenger banks. In a lot of ways this also corroborates the idea that European startups focus on profitability, earlier and access capital markets sooner than their counterparts elsewhere, says 2019 Global Fintech Funding Report by HexGn.
UK in that respect may offer cues to what kind of FinTech companies to invest in if you are looking for a healthy exit. Another stark difference is that Debt financing as an option saw a drop among deals over $100 million from 6 deals totaling $2.1 billion to 6 deals totaling $1.6 billion. This is against a total of 14 companies which raised over $100 million in 2019 compared to 10 in 2018 and 11 deals over $100 million to 16 deals over $100 million in 2019.
According to the 2019 Global Fintech Funding Report by HexGn, this shows a healthy appetite for UK FinTech companies among investors. Investors will always trust a safe bet over risky disruptions seemed to be a common theme in 2019.
FinTech Startups had a roaring year in India. Total funding in this sector increased by 113% to reach $4.3 billion in 2019 from $2 billion in 2018. Deals though fell by 6%, says According to Global Fintech Funding Report by HexGn.
India saw only 2 deals over $100 million in 2018 and this increased to 7 in 2019. If we look at startups the same increased from 2 in 2018 to 6 in 2019. Most of the funding concentrated at the established names.
However, with a number of new age FinTech companies securing early stage funding 2020 could again be a strong year for FinTech in India. Unlike other markets there were no debt financing deals at the top. India is dominated by wallet and payment firm. When India removed all physical currency in circulation, wallets usage zoomed.
According to Global Fintech Funding Report by HexGn, the game changer for this sector occurred when the UPI (Unified Payment System) was introduced. Suddenly people could make payments from their Bank accounts directly by scanning a QR code from any intermediary through any payments app. Therefore, don’t be fooled by the nomenclature of wallets. The are now just payment companies and are quickly adding services to stave off the challenge from a new wave of wallet-less payment apps.
2019 also saw continued thrust for Lending & Finance companies and the emergence of Challenger Banks. Insurance focused FinTech startups continued to draw interest. Given India’s highly regulated banking sector it remains to be seen how they perform. With its huge population and increased use of digital payments India will continue to be a growth engine for FinTech in the years to come, according to Global Fintech Funding Report by HexGn,
The most dramatic change in FinTech sector in 2019 was the complete collapse of it in the largest fund grabber of 2018, China. The fall so steep and ramifications so deep that it will be hard to ignore. Are there lessons to be learnt or is just a case of trade wars taking their toll.
Running completely contrary to our positiveness on FinTech sector China Story for FinTech should serve as a reminder that any investment comes with risks and when things are plain and obvious one has to exercise caution. Without sounding like a pessimist for too long, let us delve into what happened in China and our take on it.
According to the 2019 Global Fintech Funding Report by HexGn, 2018 saw fund raising by Chinese FinTech firms reach new highs. The sector had just closed the year with a total funding of $ 27 billion. This was 55% of the total global funding as we have pointed out. Ant Financials $14 billion fund raise was unheard of for its sheer scale and how it tied in to Alibaba’s vendor base. It looked like a match made in heaven. Lending & Finance companies had arrived and looked set to reshape China’s Lending landscape.
2018 also saw a record 22 companies raise over $100 million in the year and 20 deals were of that magnitude. It looked like everything that walked was thrust a huge wad of currency to run. Cut to 2019 and the mood was not somber, it was downright depressing.
The sector attracted a mere $1.9 billion in 2019. Just 3 startups raised over $100 million and only 4 deals were of that magnitude. What went wrong? The answer is Lending & Finance. The large sums of money raised by these startups were to take on shadow financing. Free public sector companies from crony lending and create a credit scoring map of each and every businessman. So, when trump came along and imposed tariffs, it affected credit requirement. It slumped to unseen levels driven by a lack of new orders.
Startups were sitting on piles of cash for which suddenly there were no takers. The remaining few who were able to raise funding in 2019 were so different to the ones who raised money in 2018 that the answer was obvious. Out of the top 10 Fund raise in 2018, 6 were Lending & Finance companies which raised a combined $19.6 billion. 2019 saw just 2 companies and they raised $110 million. However, the negative sentiment also shifted to the entire segment. FinTech ideas were to be wholly ignored in 2019.
According to the 2019 Global Fintech Funding Report by HexGn, this is a stark reminder to all investors that while Lending & Finance offers a new frontier, economic woes have the potential to completely stall or kill this segment in FinTech. With the Coronavirus (Covid-19) manifesting its menace not only by way of human lives but also economic stagnation. Investors can avoid it only at their peril. Contactless payments deserve a second look.
According to the 2019 Global Fintech Funding Report by HexGn, funding in FinTech startups increased in Brazil by 100%. 2018 funding level of $445 million was surpassed to reach $889 million in 2019. The top startups to receive funding in 2019 were mainly challenger Banks and Lending & Finance companies. The surprise was also a software with Machine learning to help recover outstanding. Creditas which makes this happen raised $230 million in 2019.
According to the 2019 Global Fintech Funding Report by HexGn, the year belonged to Challenger Banks in Brazil, with Nubank emerging from the shadows to raise $400 million in 2019. Neon was another Challenger Bank which raised $95 million in 2019.
In terms of mix, Brazil had a bit of Samba Magic with FinTech. The funding was broad-based in terms of segments like Challenger Banks, Lending & Finance startups, Wallet & Payments and the oddball Machine learning for recovery of Non-performing assets all getting backing from investors. 2020 will be a year to watch for Brazil as to how much momentum it has gathered.