DealmakingFintech

Mega-rounds drove fintech funding in Q3

Accelerating B2B & B2C fintech adoption drives momentum for VC funding & SPAC deals

The global stampede of fintech unicorns continues as funding in the space continues to be dominated by mega-rounds.

A new report from data and analytics provider CB Insights tallies 70 VC-backed fintech unicorns around the world with a collective valuation of $248 billion. That’s up from 67 in April 2020. A March report from Rosenblatt Securities pegged the number of global fintech unicorns at 58.

The total of 25 mega-rounds for fintech companies — funding deals of at least $100 million — in the third quarter of 2020 certainly bolstered the pack of unicorns as well as other fintechs. Unicorns carry a valuation of at least $1 billion.

CB Insights’ Unicorn Tracker lists Stripe as the world’s biggest fintech unicorn when measured by valuation ($36 billion), followed by One97 Communications (Paytm) at $16 billion, Chime at $14.5 billion, Robinhood at $11.7 billion and Klarna at $10.7 billion.

During this year’s third quarter, the 25 mega-rounds accounted for 60% of all fintech funding, the CB Insights report says. That’s the largest share since the second quarter of 2018, when 68% of all fintech deals were mega-rounds. Mega-round funding jumped 24% from the second quarter to third quarter, landing at $6.4 billion. That compares with a 16% quarter-over-quarter decline in funding outside mega-rounds.

One example of a fintech-focused mega-round lies in Affirm, which raised $500 million during the quarter before filing confidentially to go public. The outsized round was a testament to the increased popularity of the “Buy Now, Pay Later” movement, which has gained serious traction as of late – especially during the COVID-19 pandemic.

Sector focus

Paytech companies raised almost $4 billion in the third quarter of 2020 across 109 deals, with mega-rounds accounting for 65% of all paytech funding in the quarter.

Funding to banking companies grew for the third consecutive quarter to $2.4 billion, up 8% quarter-over-quarter, while deals ticked up 5% to 58.

Insurtech funding rose 52% QoQ while deal volume ticked up 6%. Five mega-rounds propelled more than $1.2 billion in funding in the third quarter, making up 47% of insurtech’s total funding:

  • Bright Health, $500 million
  • Next Insurance, $250 million
  • Waterdrop, $230 million
  • Hippo, $150 million
  • Policy Bazaar, $130 million

Deal flow

The third-quarter total for mega-rounds fell four shy of the second-quarter total (29) and two shy of the total (27) in the second quarter of 2019.

Overall, global deal activity fell for the fourth consecutive quarter, the report shows. In the third quarter of 2020, deal activity posted a 24% year-over-year decrease. But angel and seed rounds saw a 20% quarter-over-quarter rise, reversing a three-quarter contraction.

However, the amount of dollars raised has risen steadily over the year. Globally, fintechs raised $10.6 billion in the quarter – which is up compared to $9.5 billion raised in the first quarter of 2020 but less than the $12.5 billion raised in the 2019 third quarter.

In North America specifically, Q3 funding totaled $6.01 billion – up significantly from the $3.7 billion raised in the first quarter of 2020, and higher also than the $4.9 billion raised in the 2019 third quarter.

Who’s driving these deals? From the third quarter of 2019 to the third quarter of 2020, these were the most active fintech VCs, according to the report:

  1. Sequoia Capital
  2. 500 Startups
  3. Ribbit Capital
  4. Accel
  5. Global Founders Capital (GFC)
  6. Greycroft
  7. a16z
  8. Insight Partners
  9. Index Ventures
  10. Speedinvest

SPACs

Aside from mega-rounds, another trend that took off in the third quarter was SPACs, also known as special purpose acquisition companies (read our explainer here). The CB Insights report counted 141 such deals thus far in 2020 (through Oct. 15), compared with 58 in 2019 and 41 in 2018.

“Amid COVID-fueled market uncertainty, SPACs provide an alternative and expedited path for companies to raise capital in the capital markets over the traditional IPO,” the report says.

The report highlights five fintech-focused SPAC deals announced in the third quarter:

  • FinTech Acquisition III plans to merge with payment processor Paya.
  • FG New America Acquisition planned to raise $225 million.
  • FTAC Olympus Acquisition raised $750 million.
  • Gores Holdings IV plans to merge with United Wholesale Mortgage.
  • FinTech Acquisition Corp. IV priced its IPO at $200 million.

In October, FinLedger covered a number of recent fintech-focused SPACs, including those launched by Billtrust, Lefteris and Cascade.

Other trends

The report also highlighted a number of other trends we’ve also observed. One is the rise of embedded fintech. At least four companies in the space – Finix, Gusto, Bond and Element – raised money during the quarter.

What’s so interesting about embedded fintech is that these companies help non-financial companies offer financial products. For example, Finix is vocal about its mission to help any software company become a payments company. In late August, Finix, which makes white-label software to let companies become their own payment processors, raised another $30 million, taking its Series B round to a total of $75 million. It’s backed by the likes of Lightspeed Partners, Amex Ventures, Activant Capital, Precursor Ventures, Visa and Homebrew.

Element raised a $12 million Series B during the quarter. That company provides insurance products to its customers. For example, the report points out, the startup partnered with telecom provider Vodafone to provide its mobile phone and tablet customers with a cyber-crime
insurance product.

Another trend that CB Insights highlighted is that of fintechs doing more rebundling. Companies are adding products and services outside of their original focus to find new monetization opportunities. In the process, they are blurring the lines between verticals.

Latest Articles

How fintechs work with outsourced customer service providers to meet demand
Dec 03, 2021 By

For new, fast-growing fintechs, mastering the user experience and refining product capabilities can be a significant investment. The challenge is that financial services customers also demand a seamless customer service experience. According to a survey by enterprise contact center platform Talkdesk last year, two-thirds of the nearly 900 consumers polled said one bad customer experience […]

Content from our partners

Log In

Forgot Password?

Don't have an account? Please

Register

Forgot Password

Please enter your registered email address below to receive a password reset link.

Check Your Email

A password reset email has been sent to the email address on file for your account, but may take several minutes to show up in your inbox. Please wait at least 10 minutes before attempting another reset.

Welcome to FinAssist

Go to your inbox and open 'Welcome to FinAssist, your company discovery platform' to get started. You may also skip your inbox and 'Start tutorial'.