The fintech industry has experienced a monumental tailwind from the COVID-19 pandemic as industries across the economy are having to pivot strategies and digitize faster than ever to stay competitive.
So it’s not surprising to see that quarter-to-date, global fintech funding has exceeded $13.4 billion as of Feb. 28, marking the highest quarterly total since the second quarter of 2018, according to a report by CB Insights. Even in Q2 2018, $14 billion of that total was due to fintech giant Ant Group.
This quarter’s fintech funding is on pace to reach $15 billion. Additionally, Q1 2021 is on pace to grow 39% quarter-over-quarter even after excluding Robinhood’s $3.4 billion funding raise.
Although fintech funding grew across major regions compared to the same quarter in 2020, North America reached a record high for quarterly funding which was driven by Robinhood’s emergency fundraise.
But the record-hitting fintech news doesn’t stop there: Q1 2021 had 33 “mega-rounds” setting a record. Of these mega-rounds, the U.S. led the way with 15 rounds, while the U.K. trailed behind with 5 rounds. Alex Kern, intelligence analyst at CB Insights, told FinLedger that we’re in an economic environment where there’s a lot of investors chasing yield.
“That, combined with just how many mature later stage fintech companies there are, it creates this combination of a lot of capital chasing a concentrated group of high quality fintech companies,” he said. “That pushes up valuations, and they’re not just traditional VCs interested in the space, you also have hedge funds and corporate venture.”
Some notable mega-rounds to mention include Checkout.com’s $450 million round that gave it a $15 billion valuation. Also, data company MX raised $300 million in a Series C funding round which was led by a $150 million investment from TPG Growth, the middle market and growth equity investment arm of alternative asset giant TPG. Meanwhile, Brazilian neobank Nubank raised a $400 million Series G round which gave it a valuation of $25 billion.
The report also showed that although seed and angel rounds still comprise 31% of funding rounds this quarter, that’s down from 35% in Q4 2020 and 42% in Q3 2020. A slowing down in seed-stage deals is worth paying attention to throughout the year. A continued decrease in reported seed and angel rounds could signal that fintech incumbents have claimed most of the growth potential in the industry, eventually impeding the number of late-stage deals worth striking in the future.
But overall, Kern thinks that fintech is a sustained trend in how people conduct their lives.
“It’s almost a cliche at this point to say it, but I do think COVID reignited an interest in how people can conduct their financial lives digitally,” Kern said. “That’s where you’re seeing investor interest come into play. And of course, it’s part of the low interest rate environment, and people needing to put capital to work and fintech is one of the later evolutions of what’s happened online.”
By and large, industry peers agree with Kern’s analysis of the fintech’s growth potential. In prior reporting, CrowdStreet’s CEO Tore Steen told FinLedger that the pandemic has forced many of its real estate investors to accelerate their digital plans, a boon for his business.
Kern went on to explain that these funding rounds are also reflective of a larger trend in the business world, which is that many companies are staying private longer.
“In general, there’s less need to get capital in the public markets than there was 10 years ago,” he said. “There’s just so much capital available in the private markets at the moment.”
But regardless of how much private capital is flooding the market and delaying the need to go public, every startup has to exit at some point. And plenty of investors got a handful of returns in Q1 2021.
Affirm kicked off the year by going public in early January. As reported by Fortune, the buy now, pay later company listed it shares at $49. By mid-day, those shares rose to $100—an incredible IPO pop on the first day of trading. Compass, a Softbank-backed real estate company that raised a whopping $1.5 billion in private capital, is also expected to go public shortly at a $10 billion valuation. CEO of HW Media Clayton Collins took us on a deep dive regarding Compass’s S-1 filing.
On the acquisitions front, PayPal acquired Curv to increase its cryptocurrency talent bench. Prior to its acquisition, Curv raised a $29.5 million Series A with participation from Illuminate Financial and Franklin Templeton Investments. Earlier this month, Cardlytics acquired Dosh, a cash back app, for $275 million. Cardlytics reportedly made the acquisition with the intent of reaching Gen Z customers.
While we can’t predict the future, there’s little reason to doubt that fintech will keep up its funding pace throughout the rest of the year. Even as we slowly return back to normal with the help of vaccines, we can expect fintech startups to continue to be an attractive sector for investors; it’s hard to go back on the convenience and ease of use that many of these startups have put on the market.