Welcome back to The Interchange! If you want this in your inbox, sign up here.
When it came to fintech news, we saw a pretty sluggish first half of 2023, and that is evidenced by the sobering funding statistics we cover below. But things feel like they are starting to pick up, as evidenced by our crowded inboxes. Read on for more details!
Deal volume is way down
It’s no secret that venture capital investment had slowed down this year, and last week, we saw just by how much.
S&P Global recently reported that funding into global fintech companies dove 49% year over year, to $23 billion during the first half of 2023. Round values declined, on average, 12% for seed firms and 14% for early-stage firms in 2022, and round values for growth-stage and mature startups were even lower, 43% and 66%, respectively.
Even more startling, we also saw a dramatic decline in the number of funding rounds raised during that time period — just 1,178 investments were made: a 64% drop from the same period in 2022. In the second quarter of 2023, there were 522 deals that closed, down from 656 in the first quarter and down from the 944 investments made in the second quarter of 2022.
Investor sentiment was already starting to wane in the sector — the market intelligence company noted this was “the slowest quarter on record over the past 2.5 years.” However, it also called out the Silicon Valley Bank failure in March as an event that “further dampened investor risk appetite.”
Mega-rounds, those over $100 million, were also missing: 23 in the first quarter and just nine in the second quarter. This is a decrease from the 55 made in the second quarter of 2022.
Stripe was one of the big winners during the first half of the year after taking in $6.5 billion. U.S. fintechs overall raised $12.16 billion during that time period, with S&P reporting that was down 28%. Without Stripe’s raise, “it would have failed to surpass the COVID-hit H1 2020 deal volume of $8 billion,” the report said.
Company valuations did not have the same fate, though, and actually improved, rising to $9 billion and $14 billion in the first and second quarters, respectively, compared with $9 billion in the third quarter and $8 billion in the fourth quarter of 2022
Take heart, as we see evidence, here and here, that the second half of the year could look better. — Christine
Valuations looking up
Speaking of valuations, on a more positive note, PitchBook released its second-quarter fintech and payments public comp sheet and valuation guide. According to PitchBook, share prices for recently public fintech companies have been rebounding faster than the wider market — rising by 21.2% in the second quarter, compared with the Nasdaq’s 12.8% and S&P 500’s 8.3% return. At the same time, investors are prioritizing profitability, as traditional IPOs (up 21.2%) are outperforming SPACs (up 13.5%). Specifically, PitchBook said: “Neobanks, insurtech, proptech, and high-growth payments companies are all working to turn a profit, whereas well-funded incumbents are pursuing M&A. A reset almost always favors the strong.” Companies that have actually seen a boost in stock price over the past year include Coinbase, Nubank, Robinhood, SoFi, Oscar Health, AvidXchange, Flywire, Remitly, Wise, Redfin and Zillow.
Analysts James Ulan and Rudy Yang wrote: “Many fintech companies have focused their efforts on achieving profitability, resulting in reductions in personnel, marketing costs, and other operating expenses. Some fintech companies such as neobanks are beginning to emerge with profitable business models. We expect investors to remain prudent in the near term and to continue to look for companies on the path to profitability.” They also noted the flurry of M&A deals we saw in the quarter, including Robinhood’s $95 million purchase of X1 and FIS’ purchse of Bond, saying: “The pickup in M&A activity suggests that lower valuations are favorable for acquirers with adequate free cash flow and sufficient cash balances.”
Interestingly, in May, TC+ editor Alex Wilhelm concluded that “we’re close to peak pessimism around fintech.” At that time, he pointed out that fintechs haven’t fared well at all even when you account for the broader dip in valuations at tech companies and as compared to before the recent venture boom. But it looks like the tide may be turning. One can hope. — Mary Ann
To hear Alex and Mary Ann talk more about valuations, check out Friday’s Equity Podcast episode.
Weekly news
It looks like all of the co-founders of once-buzzy-as-heck alternative financing startup Pipe have moved on. Mary Ann talked to Michal Cieplinski about his new venture, a company called CapStack that aims to serve as an integrated operating system for banks. Notably, Cieplinski said he was able to raise $6 million in funding led by Fin Capital for the startup not only before the company had any revenue, but also before it had a product, or even a beta version of a product. Now, this was very common in the heydays of the venture boom in 2021, but far less so today. According to Cieplinski, the VCs he talked to said they’d been “waiting” for someone to build what he aims to build and one even “said yes after seven minutes.” Also notable is that Cieplinski had transitioned from his role as chief business officer to a senior advisor at Pipe at the end of February, a few months after the startup made headlines when the rest of its co-founders stepped down at the same time amid a hunt for a new, “veteran” CEO. Pipe, which had raised more than $300 million in funding and was once valued at $2 billion, was the target of a number of allegations surrounding its use of capital — all of which the company vehemently denied. We still don’t know the whole true story of what went down at Pipe, but one has to ask: If what this company is building is so promising, why have every single one of its co-founders already moved on??
French startup Swile shared some revenue metrics just a year after merging with Bimpli, the employee benefits division of BPCE. Swile’s main product is a payment card for employee benefits, such as meal vouchers. In 2022, Swile generated €138 million in revenue ($153 million at today’s exchange rate) — that includes Bimpli’s revenue. And yet, the company’s losses widened to €72 million ($80 million). In other words, 2022 has been a mixed bag. More from Romain Dillet here.
Totem, which describes itself as the “only digital bank by and for indigenous people,” says it has launched the public version of its digital banking app on the App Store on July 3. The company says its offering provides Native American, Hawaiian, and Alaska Natives with “foundational, accessible financial products” such as spend accounts with no monthly fees or minimum balances, as well as two-day early paycheck access for direct deposit customers, among other things. Other features include a resources tab featuring searchable information on federal benefit programs and community resources for indigenous people. Also, Totem touts that it gives back to its tribal partners every time the tribe’s members make a purchase with their Totem card.
JPMorgan has hired a former SVB exec to lend to Silicon Valley startups. This follows Brex’s recent hire of an SVB veteran to serve as its head of startups.
More news
Checkout.com launches AI-led ID verification solution (Check out TechCrunch’s recent Q&A with the company’s new president here.)
Brazil’s Ebanx partners with Nubank to offer payment service to customers (Hear more about Nubank’s strategy and growth metrics here.)
Revolut’s US payment flaws allowed thieves to steal $20M (Read more about the re-examination of the digital bank’s valuation here.)
Eight VCs who claim not to be “fintech tourists” share on Twitter the advice they are giving to their portfolio companies. (TechCrunch conducted its own fintech investor survey in the first quarter, which you can check out here.)
Will Smith-backed US broker Public launches in the UK in first foray overseas
Stratyfy and Beneficial State Foundation partner to combat ‘industry-wide’ racial lending disparity
ProcurePay, an automated payments solution from Mesh Payments
Clear Street enters futures market via acquisition of React Consulting Services
Fundraising and M&A
As seen on TechCrunch
Mattilda grabs another $19M, this time to expand beyond Mexico’s private schools
Silo raises $32M to help food supply chain companies manage their finances
Defacto gets new credit facility to provide instant financing to small companies
Jirav, a startup developing financial planning software for businesses, raises $20M
Collective, a financial management platform for freelancers, raises $50M
Solaris raises $42M at a flat $1.6B valuation to expand in embedded finance after a rough 2022
Instant bank payments startup Ivy secured $7.7M in seed round led by Creandum
Seen elsewhere
Multifamily operating system Entrata to acquire Rent Dynamics
When I Work buys fintech Lean Financial
US fintech start-up MerQube lands $22m Series B funding
Homeowner wealth management startup House Numbers raises $3.75M
Certificial raises $15M in funding
Curvo has raised €500,000 in seed capital
Insurtech firm Sigo Seguros secures $5.1M in a pre-Series A funding round
Join us at TechCrunch Disrupt 2023 in San Francisco this September as we explore the impact of fintech on our world today. New this year, we will have a whole day dedicated to all things fintech, featuring some of today’s leading fintech figures. Save up to $600 when you buy your pass now through August 11, and save 15% on top of that with promo code INTERCHANGE. Learn more.
Image Credits: Bryce Durbin
The fintech funding slump, by the numbers by Christine Hall originally published on TechCrunch