KPMG and CB Insights release their latest quarterly fintech venture capital (VC) report, highlighting a drop in both deals and dollars during the second quarter of 2016.
TORONTO, Aug. 17, 2016 /CNW/ - Amid a tougher climate for marketplace lenders and a drop in mega-round activity, investment to VC-backed fintech startups fell 49 percent according to the Pulse of Fintech, the quarterly global report on fintech VC trends published jointly by KPMG International and CB Insights. Despite this decline, VC investment in fintech is on pace to exceed 2015 results.
According to the new report, overall global investment in fintech companies across both venture-backed and non-venture-backed companies totaled US$9.4 billion in Q2'16, buoyed by Ant Financial's US$4.5 billion financing. Q2'16 saw VC-backed fintech companies raise US$2.5 billion across 195 deals, a 12 percent drop in deal volume compared to Q1'16.
KPMG International and CB Insights will discuss the Pulse of Fintech, investment trends and key players in fintech on a live webinar on 1 September, 2016 at 11:00am EDT. Register here.
"Despite VC backed funding to fintech decreasing in Q2, overall fintech funding remains on track to surpass 2015 levels", says Ian Pollari, Global Co-Leader of Fintech, KPMG International. "Traditional financial institutions and banks of all sizes are realizing that the opportunities associated with fintech aren't about who has the deepest pockets – and so they're intensifying their innovation efforts."
Anand Sanwal, CEO of CB Insights, added: "The decline in fintech financing and deals is in line with what we're seeing in the broader venture environment for startups, as VCs as well as crossover investors are pushing back harder on profitability and business model concerns. Despite the funding drop, previously under-invested areas of fintech such as an insurance area are gaining strong momentum among venture investors across geographies."
Key highlights from the Pulse of Fintech:
- Q2'16 saw mega-round activity fall to a five-quarter low. Europe had zero venture capital-backed US$50 million+ fintech funding rounds, while North America saw US$50 million+ fintech funding rounds fall to five rounds from 13 in the same quarter last year.
- Despite a large funding drop in Q2'16, funding and deal activity to VC-backed fintech companies in the first 6 months of 2016 are on pace to hit US$14.8 billion across more than 820 deals by the end of 2016 at the current run rate, both of which would register as record highs.
- The 30 largest fintech funding rounds during the first half of 2016 totaled over US$4.6 billion in aggregate funding. North America accounted for 19 of these rounds, while Asia accounted for eight rounds.
- Corporate investors participated in nearly one of every three deals to VC-backed fintech companies in Q2'16, compared to just 23 percent in Q2'15.
North America sees fintech funding, deals dip in Q2'16
North America saw both fintech funding and deals fall on a quarter-over-quarter basis, as VC-backed startups raised US$1.3 billion across 97 deals, a drop of 25 percent in the number of deals compared to Q1'16.
Q2'16 funding to VC-backed fintech companies in North America fell 28 percent on a quarter- over- quarter basis and 48 percent compared to the same quarter last year.
Asia fintech deals hit five-quarter high; funding returns to earth
Asia saw VC-backed fintech companies raise US$0.8 billion across 46 deals in Q2'16 – a funding decline of 71 percent from Q1'16 primarily due to the lack of major mega-rounds. Q1'16 included two US$1 billion+ mega-rounds in China. Deal activity to VC-backed fintech companies in Asia reached a 5-quarter high in Q2'16 with 46 deals recorded.
Europe fintech funding rises slightly
Europe saw VC-backed fintech funding lift to a three-quarter high in Q2'16, rising 22 percent on a quarter- over -quarter basis to hit US$369 million across 43 deals. As the UK continues to deal with the ramifications of Brexit, Q2'16 saw Germany outpace the UK for VC-backed fintech funding by 80 percent.
The rise of InsurTech
InsurTech is coming into its own as an area of fintech for venture capital investment, hitting US$1 billion across 47 deals in the first half of 2016. Health insurance-related startups claimed the three largest deals of 2016 YTD, but startups across P&C and life insurance are also seeing an increasing amount of investment.
Banks continue to stay active in fintech investing
Over the last five quarters, Goldman Sachs, Citigroup and Banco Santander or their venture arms (excludes independent VC firms associated with these banks) have invested in 25 VC-backed fintech companies. Other banks making investments globally across the fintech landscape include HSBC, JPMorgan Chase, and Mitsubishi UFJ Financial Group.
Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US said: "We are seeing more partnering by traditional financial services companies with fintechs to help develop new business models, while also enabling fintechs to expand their customer base and get the support they need to become sustainable. Although the overall VC investment in fintech is very positive, with InsurTech and Blockchain standing out as areas that continue to attract greater investment, the past quarter reflected a more cautious environment."
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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 Pilot Growth Equity 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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