Global fintech funding rebounds

BI Intelligence

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After a slowdown in the past year, global VC fintech funding recovered, and in fact, set a quarterly record in Q2 2017, according to new datafrom CB Insights. Global VC fintech funding hit $5.2 billion in Q2, up 86% from $2.8 billion in Q1.

This spike was largely down to 18 mega-rounds — those over $50 million — in the past three months. The number of deals rose just 2% in Q2, from 245 to 251, compared with a jump of 13% last quarter.

Here are the report's main findings:

• US fintech funding boomed, but deal numbers dropped. US fintechs raised $1.9 billion in Q2, up 58% from $1.2 billion in Q1. However, Q2 saw just 96 deals, down 6% from 102 deals last quarter, with the funding spike attributable to 12 mega-rounds, including to insurtech Clover Health ($130 million, Series D), trading platform Robinhood ($110 million, Series C), and automated investment fintech Addepar ($140 million, Series D). That most of these rounds were mid- or late-stage suggests these particular companies are effectively demonstrating their products' value to investors.
• European fintech saw a decline in both funding and deal numbers. European fintechs raised $498 million in Q2, down 29% from $700 million last quarter, while deal count in the region dropped 28% from 78 to 56. German fintech Kreditech bucked the downward trend with a $120 million mega-round. This general attrition is likely down to investors being spooked by the political upheaval that's afflicted Europe over the past few months, including Brexit uncertainty and contentious EU elections.
• Asian fintech maintained its funding boom on all fronts. Asian fintechs raised $2.7 billion this quarter, a 238% increase from $800 million in Q1, as deal numbers hit 67, up 56% from 43 deals in Q1. It's worth noting, however, that a whopping $1.4 billion of total Q2 funding came from SoftBank's investment in One97 Communications, which owns Indian payments fintech Paytm. That means the funding spike was somewhat inflated by this unusually large mega-round.

The rise of mega-rounds among later-stage fintechs doesn't bode well for the fintech industry as a whole. Although global fintech funding saw a huge boost this quarter, this jump was decidedly driven by raises among more mature fintechs. Significantly, overall funding to early stage fintechs declined over the same period, hitting a five-quarter low. This means that, while the new figures are certainly good news for a select few older fintechs, it remains to be seen whether the fintech industry as a whole will benefit. Arguably, to preserve the health of the global fintech industry, we will need to see support for the youngest companies pick up again, to encourage continued innovation and dynamism.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on fintech profitability that:

• Explains why the profitability question is increasingly being raised.
• Outlines why fintechs in different segments are failing to turn a profit.
• Gives examples of just how large some fintechs' losses are. 
• Explores how fintechs are striving to solve the profitability problem.
• Outlines vital considerations for fintechs and their investors.

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