Is fintech losing its lustre for VC investors?
The fintech sector may be starting to lose its lustre for venture capital investors as shifting market conditions turn their attention elsewhere.
Last year, Europe-based fintech start-ups attracted €20.7bn across 1,288 transactions, according to PitchBook, down from €24.5bn in 2021 across 1,612 deals.
Across all sectors, €91.6bn was invested last year, representing a 15.9 per cent year-on-year decline.
Fintech has developed into one of the largest subsectors in Europe since the global financial crisis, driven by an increase in digital adoption, changing consumer preferences and the rise of disruptors. During the past four years, fintech deal value has accounted for, on average, a fifth of total deal value.
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However, with crippling inflation and rising interest rates, investors may look to invest in new types of startups in undercapitalised subsectors, according to Nalin Patel, lead EMEA private capital analyst at PitchBook.
“Additionally, regulations regarding data, security, and the financial services industry are top-of-mind amid recent cryptocurrency investigations,” he said. “Subsectors such as fintech have been inundated with capital and increased scrutiny.”
Previously, Currensea chief executive James Lynn predicted a flight to quality by fintech investors, who are becoming more risk-averse due to the challenging economic climate and the collapse of large players like FTX.
In PitchBook’s latest report, Patel noted: “Demand for online financial services boomed during the Covid-19 pandemic, and the bull run in markets helped investments flow into the financial services sector. However, returns have become harder to come by in 2022, and with interest rates increasing across Europe, saving, rather than spending, has become more appealing.”
With competition between traditional financial institutions and disruptors heating up as well, companies with high burn rates will be adopting more capital-efficient strategies, in his view.
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