Few sectors illustrate the massive runup in venture funding that occurred in 2021 as well as financial services and the fintech industry. In that year, billion-dollar venture fundings went to neobanks, wealth management providers, buy now, pay later startups, cryptocurrency exchanges and insurance brokers.
Some 20% of the total $681 billion in global venture funding in 2021 went to the fintech sector alone.
But only a small handful of these companies — including Robinhood and Nubank — successfully went public. The majority of the highly funded fintechs from 2021 are still private and face cost cutting in a tougher sales environment, all while waiting for the public markets to turn favorable again.
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While much of the focus has been on late-stage companies, which are closer to the public-market turmoil, there is also a huge backlog of seed and early-stage fintech startups that were funded during the heady days of 2021, but haven’t raised new funding since.
That could mean a massive funding shortfall for the fintech sector over the next four to eight quarters, an analysis of Crunchbase data shows.
Let’s dive in.
Fintech’s stellar rise — and fall
First, let’s chart the growth and decline in recent years.
Venture funding to financial services companies hovered around $10 billion per quarter on a global basis in 2019 and 2020, then shot up to $30 billion and then $40 billion in two back-to-back quarters in 2021, Crunchbase data shows. Fintech funding then settled for three quarters around $34 billion before slipping to $25 billion in Q2 2022 and then dwindling all the way back to around $10 billion in the fourth quarter.
Fintech funding dipped more than overall global venture funding in 2022, falling 40% year over year compared to overall global venture funding, which slipped 35%.
Q1 2023 was back up above $10 billion, but that was in large part thanks to a single massive deal: Stripe’s $6.5 billion raise.
Early stage grew too
The surge in fintech funding in 2021 was most noticeable at late-stage. But the increase also impacted companies at the early stages — and it wasn’t only large outlier deals. Median Series A fundings grew by 47% in 2021 and Series B by 85%.
Meanwhile, the number of companies funded in 2021 increased by around two-thirds for both early-stage (including seed above $1 million) and late-stage financings, compared to 2020.
Where’s the follow-on funding?
Now let’s look at companies that have raised funding — anywhere from seed to Series C — by year but have yet to raise funding in subsequent years. These are the companies in danger of running out of runway if they don’t get additional capital.
Around 900 seed fintechs globally that raised at least $1 million in funding have not raised funding since 2021, an analysis of Crunchbase data shows. Another 1,400 seed-stage companies raised at least $1 million in a single seed funding in 2022 and have not raised again in 2023.
Of the Series A through Series C funded companies that raised funding in 2021, about 1,000 — around 65% — have not raised since 2021. A further 1,100 companies from Series A to Series C raised funding in 2022, but not again.
For companies funded at seed through Series C in 2019 and 2020, by contrast, roughly a third did not raise funding in subsequent years. Those companies have had more years in which to raise follow-on funding, but were also funded in a climate where median fundings and the absolute number of companies funded were lower.
As venture investors pull back, how many of these companies will be able to raise in the next 12 to 24 months or face closure?
We expect more companies will begin to test the funding markets. In a recent report from Bessemer Venture Partners on the State of Cloud their advice is to raise funding before you need to, and not to wait for a “perfect” time to raise.
Illustration: Dom Guzman
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