KPMG and CB Insights release their inaugural quarterly fintech venture capital (VC) report, highlighting a record year for venture-backed fintech startups in 2015, but waning investor appetite to close out the year.
TORONTO, March 9, 2016 /CNW/ - While 2015 marked a banner year for the fintech sector highlighted by newly minted Unicorns and increased involvement by financial services giants, Q4'15 saw investment to venture capital (VC)-backed fintech companies cool off, according to the Pulse of Fintech, the quarterly global report on fintech VC trends published jointly by KPMG International and CB Insights.
According to the new report, global investment in fintech companies totaled US$19.1 billion in 2015, with US$13.8 billion invested into VC-backed fintech companies, a 106 percent jump compared to 2014, and a record year for VC-backed fintech investment. The record levels were achieved despite a 64 percent sequential drop off in funding in Q4,with US$1.7 billion invested across 154 deals to VC-backed fintech companies globally, the lowest quarterly fintech funding total since Q3'14.
KPMG International and CB Insights will discuss the Pulse of Fintech, investment trends and key players in fintech on a live webinar on 21 March, 2016 at 11:00am EDT. Register here.
"2015 was a tremendous year for fintech investment around the globe. The evolving needs of digitally savvy consumers and the drive for efficiency, not least to meet regulatory and compliance costs, is propelling innovation in financial services like never before -- and investors are taking notice," said Warren Mead, Global Co-Leader, KPMG Fintech practice, KPMG International, and Head of Challenger Banks, KPMG in the UK. "Notwithstanding the investment pullback in Q4 2015, we expect the larger fintech investment trend to continue."
Anand Sanwal, CEO of CB Insights, further commented: "Funding momentum in the fintech sector reached record highs in Q2 and Q3. The Q4 pullback was consistent with the broader slowdown for VC-backed companies. The interest in fintech remains strong but the pullback does suggest that funding will be tougher to come by and valuations will probably reset a bit as they'd become detached from their underlying fundamentals."
Key highlights from the Pulse of Fintech:
- 2015 marked a record high in the fintech sector, with total investment in fintech companies exceeding US$19 billion as VC-backed fintech companies globally drew US$13.8 billion, more than doubling 2014's funding total. There was over six times as much funding deployed to VC-backed fintech companies in 2015 compared to 2011's total.
- Q4 funding activity saw a steep decline as globally VC-backed fintech companies saw just US$1.7 billion deployed across 154 deals, a 64 percent funding drop from the quarter prior.
- There are 19 fintech Unicorn companies globally. 14 of them provide technologies and services falling into either payments or lending.
- Larger deals across the fintech sector spiked in 2015. 2015 saw over 60 deals totaling US$50M or more to VC-backed fintech companies globally. There were fewer than 15 such deals globally between 2011 and 2013.
- A drop in mega-rounds prompted a significant Q4'15 drop in North American fintech funding, which fell 64 percent versus Q3'15 to US$949 million.
- Asia saw funding to VC-backed fintech companies quadruple in 2015 to hit US$4.5 billion. The spike was attributed to a notable rise in larger fintech deals. Asia saw 17 deals of US$50 million or more to VC-backed fintech companies, after taking fewer than 10 such deals in aggregate between 2011 and 2014.
North America sees slower finish to break-out year in fintech
2015 was a new high-water mark for fintech financing as mega-rounds pushed North American funding past US$7.6 billion across 378 deals. The break-out year was tempered by a drastic funding drop in Q4'15 as large late-stage fintech rounds, which propelled quarterly totals past US$2 billion in Q2 and Q3, did not emerge at the same pace.
Deal activity to VC-backed fintech companies in North America dropped off in the latter half of 2015, which saw just 178 deals compared to 200 deals in the first half of 2015. Seed deal share matched a five-quarter low in Q4'15, as the fintech slowdown extended its way to the earliest stages.
Asia fintech funding explodes
Asian fintech startups had a record year for investment activity in 2015, raising a total of US$4.5 billion (more than the previous four years combined) on 130 deals. In particular, China drove more than half of all funding, as mega-rounds to the likes of Dianrong and Lu.com prompted over US$2.6 billion to Chinese fintech companies. India also saw a major leap in fintech investment, as total funding jumped past US$1 billion for the first time.
According to CB Insights' Sanwal "In 2015, Asia, and especially China, benefitted from the presence of local corporations both in tech and financial services such as Alibaba, Tencent, and Ping An, all of which become increasingly active investing in and building services in fintech. Combined with the participation of hedge funds and banks, Asian fintech companies enjoyed a somewhat unprecedented funding environment."
UK's fintech hub buoys Europe
Driving Europe's fintech funding was the UK fintech hub, where mega-rounds to companies including Funding Circle, WorldRemit and Atom Bank helped UK companies account for more than half of all fintech funding in Europe.
The fintech funding boom had a less pronounced effect on Europe than Asia and North America. Funding to VC-backed fintech companies in Europe rose from US$1.1 billion in 2014 to US$1.5 billion in 2015, as deal activity rose 30% on a year-over-year basis.
Bigger deals in blockchain and bitcoin
2015 saw another record year for funding to VC-backed blockchain and bitcoin startups, which jumped 59 percent to hit US$474 million. But deals in the space fell 5 percent, as seed deal share fell to 53 percent from 65 percent in 2014. The blockchain and bitcoin space saw deal share extend to the Series C stage for the first time ever.
Corporates participate in 1 of every 4 fintech deals
Fintech's banner year in 2015 was buoyed by robust corporate investment. In each of the past three quarters, corporate VC participation in fintech deal activity reached 25 percent. Asia saw the most corporate involvement, rising as high as 47 percent in Q3'15. Europe, in contrast, saw the lowest, as corporate participation fell below 15 percent in four of the past five quarters.
"Corporate investment from financial services and technology giants remains very much part of the fintech equation." Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network, and National Co-Lead Partner, KPMG Venture Capital Practice, KPMG in the US.
"Over the past couple years there has been a significant shift as banks have moved from seeing fintech companies as disruptors to co-creators. Today, many of the banks are increasingly collaborating with fintech companies to access new markets and strengthen the user experience of their customers around the world."
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About KPMG's Global Fintech Practice
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.
About KPMG International
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.
About CB Insights
CB Insights, backed by RSTP and the National Science Foundation, is a software-as-a-service company that uses data science, machine learning, and predictive analytics to help our customers predict what's next—their next investment, the next market they should attack, the next move of their competitor, their next customer, or the next company they should acquire. The world's leading global corporations including the likes of Cisco, Salesforce, Castrol, and Gartner as well as top tier VCs including NEA, Upfront Ventures, RRE, and FirstMark Capital rely on CB Insights to make decisions based on data, not decibels.
SOURCE KPMG International
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