While fintech funding drops, crypto finance named as an emerging opportunity

In a follow-up to its latest quarterly venture capital report, PitchBook has done a deep dive into financial technology companies and, like the rest of the market, venture capital funding in the sector dropped last quarter. However, there are emerging opportunities going forward in markets such as cryptocurrency finance.

For the first quarter of 2022, there were 1,233 venture capital deals in fintech totaling $29.3 billion, down 7.3% from the previous quarter. Payments companies led the pack with $9.1 billion in deals, representing 12.4% quarter-over-quarter growth.

Checkout Ltd., a competitor to Stripe Inc., raised the segment’s largest round of the quarter with a $1 billion Series D round on a $40 billion valuation. Other notable deals included payments company Bolt Financial Inc. raising $355 million on an $11 billion valuation and Qonto raising $549.8 million over two rounds on a $5 billion valuation. Alternative lending startups also had a strong quarter, with most deals is the segment going to non-U.S. companies.

Consumer finance and financial services information technology companies had the largest VC investment contractions, dropping 40.8% and 72.7% quarter-over-quarter, respectively.

The median pre-money valuation on late-stage median fintech companies rose 44.5%, to $257.5 million, in the quarter. Early-stage median valuations jumped 57.5% from 2021’s $63 million.

Fintech venture exits slowed during the quarter, a trend reflected in all markets. Exit value in fintech came in at $8.7 billion across 79 exits. The report notes that in 2021, most fintech exits were via public markets, whereas so far this year, initial public offering activity has ground to a halt due to macroeconomic conditions. It’s predicted that VC exits in 2022 will shift primarily from public listings to mergers and acquisitions.

Although the figures may have been down overall, the report highlights that corporate crypto finance is an emerging opportunity.

As many companies begin to develop crypto strategies — including investment, payment and customer services — corporate finance teams are concurrently tasked with developing needed accounting, risk management and compliance methodologies, the report claimed. As markets such as Web 3, including decentralized autonomous organizations or DAOs, continue to grow, it’s noted that unique crypto-based financial management capabilities will be required to support it.

Overall, the report says, the growing trend toward digital channels and online channels for financial services, accelerated by the COVID-19 pandemic, will continue. “These industry tailwinds will continue to drive investment capital into fintech companies across both private and public markets,” the report concludes.

Image: Pitchbook