KPMG and CB Insights release their latest quarterly report on the state of fintech venture capital (VC) investment, highlighting a second consecutive quarterly drop in fintech deals and dollars.
After quarterly fintech investment to VC-backed companies peaked as high as US$5 billion+ in 2015, investors continue to take a much more cautious approach to fintech investments this year. Fintech funding fell 17 percent in Q3’16, according to The Pulse of Fintech, the quarterly report on global fintech VC trends published jointly by KPMG International and CB Insights.
According to the new report, overall global investment in fintech companies across both venture-backed and non-venture-backed companies totaled US$2.9 billion in Q3’16. Q3’16 saw VC-backed fintech funding drop 17 percent to US$2.4 billion, while deal activity fell 12 percent to 178 deals.
KPMG International and CB Insights will discuss the Q3’16 Pulse of Fintech report, investment trends and key players in fintech during a live webinar on 8 December, 2016 at 11:00am EST. Register here.
“This quarter, Asia outpaced North America in terms of fintech funding – a major shift from historical norms,” says Warren Mead, Global Co-Leader of Fintech, KPMG International. “The question is whether Asia will continue to set the pace headed into 2017. With the diversity of investments and widespread support for the growth of fintech hubs in the region, it’s a very distinct possibility.”
Anand Sanwal, CEO of CB Insights, adds: “While we continue to see significant investment into fintech companies globally, the euphoria for mega-deals that we saw into the latter half of 2015 has waned. Total investments to key areas like marketplace lending and blockchain technology have both seen declines heading into the tail-end of 2016.”
North America saw both fintech funding and the number of deals fall on a quarter-over-quarter basis, as VC-backed startups raised just US$0.9 billion across 96 deals, a drop of 5 percent in deals from Q2’16.
Funding in Q3’16 to VC-backed fintech companies in North America fell 68 percent compared to the same quarter last year, which saw US$100 million+ financings to the likes of Sofi, Avant and Kabbage.
While the number of VC-backed fintech deals dropped to a five-quarter low in Asia, funding increased 50 percent on a quarter-over-quarter basis to reach US$1.2 billion. Year-to-date results suggest Asia-based fintech investment for 2016 could top last year’s peak investment results.
Corporates continue to be highly active in Asia’s fintech investment environment, participating in more than half of all deals to VC-backed fintech startups in Q3’16.
Q3’16 saw European fintech deals fall 17 percent quarter-over-quarter as fintech funding in Europe dropped 43 percent over the same time period to US$233 million. Germany outpaced the UK in terms of fintech funding for the second consecutive quarter, with 35 percent more funding raised by German-based VC-backed fintech companies than those in the UK.
Corporates participated in 30 percent of global VC-backed fintech deals for the second consecutive quarter in Q3’16, driving a significant amount of fintech deals activity globally. Citigroup, Banco Santander and Goldman Sachs have made over 20+ fintech investments in total over the past five quarters, while a host of insurers have launched corporate venture arms.
“Fintech funding is down this quarter, but it in no way reflects a lack of interest among investors, particularly corporates who see fintech as a way to leapfrog ahead of the competition. In Q3’16, corporate venture capital participation in global deals to VC-backed fintech companies reached 30 percent for the second consecutive quarter,” says Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US. “This interest will continue to grow as corporates are looking to take advantage of the opportunities fintech provides.”
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KPMG’s Financial Services practice has launched the Global Fintech Practice in order to leverage international investment activity and capability development in fintech across KPMG member firms. Warren Mead and Ian Pollari, partners with KPMG in the UK and KPMG in Australia respectively, have been appointed as global co-leads of the practice, along with a leadership team including partners from countries including the U.S., U.K., Israel, China & Hong Kong, India and Australia.
KPMG is a global network of professional services firms providing Audit, Tax, and Advisory services. We operate in 155 countries and have 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
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The views and opinions expressed herein are the personal opinions of the interviewees and authors based on their personal experience working as Auditors in the industry and do not necessarily represent the views or opinions of KPMG International or any KPMG member firm.