Fintech Investment Reaches New Heights

Shifting focus from recent IPO activity, let's examine the current state of venture capital, specifically within the fintech sector.

The fintech industry is experiencing substantial growth. Companies like Robinhood, Public, and M1 Finance have recently secured significant funding rounds.

Furthermore, payment technology company Finix is expanding its investor base, and successful business models are gaining traction and attracting capital across various markets.

Record-Breaking Investment in Fintech

Despite this apparent boom, a deeper understanding of the market may be necessary.

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Preliminary data from CB Insights reveals that fintech funding isn't simply strong; it's at an all-time high, particularly concerning mega-rounds – investments exceeding $100 million.

The first quarter of 2020 presented a challenging benchmark for setting a new record for mega-round funding. The previous quarter, Q4 2020, witnessed 30 fintech rounds globally valued at nine figures or more.

However, Q1 2021 has already surpassed this previous high, ensuring a new record is established.

Analyzing Seed Deal Volume

Today’s discussion centers on substantial financial investments in fintech, alongside an exploration of early-stage trends.

An inquiry was made to a CB Insights analyst regarding a potential decline in fintech seed deal volume.

Is this decrease attributable to reporting delays common in seed data, the influence of SAFEs and similar instruments obscuring visibility into early funding stages, or a genuine slowdown in activity?

Let's investigate these possibilities.

Growth and Shifts in Fintech Investment

According to preliminary data from CB Insights, the first quarter of 2021 witnessed approximately 33 fintech mega-rounds – investments exceeding $100 million. This represents a substantial increase, surpassing the number of similar rounds in both the first quarters of 2020 and 2019 by more than 50%.

Analyzing the available data reveals a clear upward trajectory, suggesting the current record isn't a temporary anomaly but rather a continuation of a sustained growth pattern. Furthermore, the composition of large fintech investments in Q1 2021 indicates a geographically diverse distribution.

The United States accounted for less than half of the total, a departure from the previous record-setting quarter, Q4 2020. The United Kingdom followed as the second largest recipient of investment, with China, India, Brazil, and several other nations – including Argentina, Australia, Canada, France, Germany, Hong Kong, Indonesia, Israel, Italy, Mexico, Netherlands, Nigeria, Singapore, South Korea, Sweden, Uruguay, and Vietnam – also securing significant funding during the first quarter.

While not every listed country secured a $100 million+ fintech investment within the last two months, the number of countries outside the traditionally dominant “Fab Fintech Five” achieving this milestone is noteworthy. Currently tied for the second-highest quarterly total at six investments, just three more mega-rounds would establish a new record for fintech investments outside of the leading markets.

The final figures for the quarter will provide a more definitive picture of these trends.

However, substantial investment isn't solely defined by large sums. Smaller investment increments, such as seed funding, also play a crucial role. Interestingly, the proportion of total deal volume represented by seed and angel deals decreased to 31% in Q1 2021, according to the same report. This figure is subject to change as the quarter concludes, but it currently represents the lowest percentage since at least 2018.

In comparison, seed and angel deals constituted 45% of total fintech deal volume in the corresponding quarter of 2018. A gradual decline has been observed since early 2019, progressing to 35% in Q4 2020 and the current 31% in Q1 2021.

Understanding the Shift

Alex Kern, a CB Insights analyst, offered insight into this trend. When questioned about the decline in seed fintech deals and potential reporting delays, he proposed a possible explanation:

This perspective – which may be contested by seed-stage investors – suggests a potential transition between waves of fintech innovation. Many initial concepts may have matured, leading to larger funding rounds, while the volume of smaller deals correspondingly decreases.

This observation aligns with the broader trend of venture capital, particularly within fintech, shifting towards later-stage and larger-scale investments. The data supports the notion of a maturing market.