European Venture Capital Fintech Funding Put on Hold

KPMG and CB Insights release their latest quarterly fintech venture capital (VC) report, highlighting a rebound in funding and deals.

After a significant pullback in funding in Q4’15, mega-rounds lifted quarterly global investment into VC-backed fintech companies by over 150 percent, according to the Pulse of Fintech, the quarterly global report on fintech VC trends published jointly by KPMG International and CB Insights.

However, Europe saw VC-backed fintech investment continue to pause for breath as funding remained almost level with Q4’15’s at US$348 million. The UK still dominates European funding (comprising about 50% of the total). Whilst the UK remains ahead of Europe, the level of funding in the UK fell significantly in Q1’16 to US$102 million from US$275 million in Q4’15 as the combined effect of low oil prices, stock market volatility and concerns over the outcome of the EU referendum may have held back the investment community.

Warren Mead, Global Co-Lead, Fintech, KPMG, comments: “Investors are putting money into fintech companies all over the world – from the traditional strongholds of China, the US and the UK to up and coming fintech hubs like Singapore, Australia and Ireland.

“However, economic uncertainty has meant that funding into the UK has slowed with investment falling 41 percent since the final quarter of 2015. Despite this, UK funding still outpaces other European countries making up around half of all Europe’s VC-backed fintech investment.”

Anand Sanwal, CEO at CB Insights, added: “Fintech investment in Europe has certainly been less overheated than in other markets, which has resulted in an increasing appetite for fintech investments in the region by cross-border investors both from the US and Asia.

“However, while fintech startups globally continue to attract large investment, and investors gravitate to areas yet untouched by much tech innovation including insurance, recent events and public market performance suggest that growth-stage fintech fundraising will be harder to come by throughout the rest of 2016.”

KPMG International and CB Insights will discuss findings from the Pulse of Fintech report, investment trends and key players in fintech during a live webinar on 31 May, 2016 at 11:00am EDT.

Key highlights from the Pulse of Fintech:

• Q1’16 saw a big rebound in funding to the fintech sector, with total investment in fintech companies hitting US$5.7B. Globally, VC-backed fintech companies drew US$4.9B in funding, rising from just US$1.9B in Q4’15.
• VC-backed deal activity rose dramatically quarter over quarter. Q4’15 saw fintech deal activity fall to the lowest point since Q2’14. This drop reversed course in a big way in Q1’16 as VC-backed fintech deals rose to a new quarterly high of 218 globally.
• Larger deals spurred fintech funding growth in Q1’16. Q1’16 saw 13 US$50M+ rounds to VC-backed fintech companies, a slight rise from the 10 US$50M+ rounds in Q4’15, but a drop from the 18 mega-rounds in Q1’15.
• Asia saw funding to VC-backed fintech companies jump to US$2.6B in Q1’16 from just US$0.5B in Q4’15. This dramatic rise came on the back of the US$1B+ mega-rounds to JD Finance and Lu.Com.

North America sees funding bounce back

North America saw both fintech funding and deals rebound following a major drop in Q4’15, as VC-backed fintech companies raised US$1.8B across 128 deals, an increase of 80 percent in funding quarter-over-quarter.

Deal activity to VC-backed fintech companies in North America is on pace to reach a new high in 2016 at the current run rate, as the 128 fintech deals registered over the three-month period was the largest quarterly total since Q2’15.

Chinese mega-rounds propel Asia fintech funding

Following a drop off in Q4’15, fintech investment in Asia reversed course in Q1’16 to hit a new high of US$2.6B.

China accounted for US$2.4B of Asia fintech funding and 49 percent of fintech funding across all geographies, primarily as a result of US$1B+ funding rounds to JD Finance and Lu.com.

Corporates participate in over 20 percent of deals for fifth straight quarter

Corporate investors continue to play a large role in the fintech ecosystem, with global deals to VC-backed fintech companies standing at 24 percent + in three of the past five quarters. Of note, Europe saw an upswing in corporate fintech investment during Q1’16 as corporate participation in deals to VC-backed fintech companies rose from 8 percent in Q4’15 to 21 percent in Q1’16.

Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US said: “Q1’16 was a strong quarter for venture capital investment in the fintech sector, characterized by 13, US$50M plus rounds to VC-backed companies globally, including billion-dollar rounds by Lu.com and JD Finance. However, recent challenges at several high profile, publicly-traded fintech companies, may well dampen private investor enthusiasm moving into Q2.”