Investments into VC-backed fintech companies to exceed 2015 levels: KPMG-CB Insights report

According to the latest edition of The Pulse of Fintech Report — a collaboration between KPMG International and CB Insights – there was a decline in global funding to VC-backed companies, however the overall fintech future remains positive.

“This pause is not reflective of the sectors’ unique strengths and potential for growth; Rather, the decline is most likely a result of global market conditions. Even with the Q2’16 decline, investment into VC-backed fintech companies is on pace to exceed 2015 levels”, the report said.

The key takeaways from the report are:

• In Q2 2016 VC-backed fintech companies raised $2.5B across 195 deals; Overall fintech investment reached $9.4B.
   
• Funding to VC-backed fintech companies dropped 49% on a quarterly basis in Q2’16, while deal activity fell 12% from Q1’16’s total.
   
• Fintech seed deal share fell to a 5-quarter low in Q2’16 at 29% from 34% in Q1’16. Series C deal share rose to a 5-quarter high in Q2’16 at 12%.
   
• Corporate participation in VC-backed fintech deals rose to the 5-quarter high and surpassed the 30% mark in Q2’16 to hit 32% compared to 23% in Q2’15.

The report particularly looks into the fintech landscape in North America, Europe and Asia. It states that Fintech funding in North America declined in Q2’16 — from $1.8 billion to $1.3 billion — despite an uptick in overall VC funding in the region during the quarter.

“InsurTech and blockchain were among the big winners during the quarter, with a number of significant funding rounds coming in these two sub-sectors, including rounds by Clover Health Insurance, a company focused on offering data-driven health insurance options ($350 million) and Circle Internet, a company that allows users to send payments for free ($60 million). It is expected that these areas will continue to gain momentum as investors grow more cautious regarding payments and lending opportunities”, it said.

In Europe, the report found that VC investment in fintech rose during the second quarter despite market uncertainties related to the Brexit vote in the UK. While the number of deals dropped slightly, investment rose from $303 million to $369 million quarter-over-quarter.

“Germany played a strong role in Europe’s positive results with investment rising from $107 million to $186 million between Q1 and Q2’16 in the country”, it said, adding that fintech funding rounds in Germany stretched beyond the traditional VC space in Q2’16.

Lastly, in Q2’16 Asian VC-backed fintech companies raised $772 million, down from $2.6 billion in Q1. The report further noted that year-to-date figures show that $3.4 billion has been raised by fintech companies in the first 2 quarters of 2016, suggesting that funding is on track to exceed the $4.7 billion raised during all of 2015. It further added that China is leading the fintech space in Asia, however, fintech ecosystems are sprouting and growing across the region.

“Given global market uncertainties associated with the UK Brexit vote and its initial impact, the approaching US presidential election, ongoing concerns about valuations and significant headwinds in the marketplace lending space, it was not surprising to see VC investors taking a pause, particularly from making significant fintech mega-deals. It is expected that this cooling-off period may last through the remainder of the year as investors take a ‘wait and see’ approach expecting market conditions to stabilize over the next few months”, it said.