Geography of investments in the fintech industry: venture capital

Due to their rapid growth and global influence, Sergey Kondratenko proposes to analyze the size and share of the global Fintech market. The expert notes that recently, with the development of digital technologies and changes in consumer preferences, the global fintech market continues to expand.

Sergey Kondratenko is a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing the overall profitability of the online business.

Sergey Kondratenko: analysis of global and regional features of investing in fintech

The first six months of 2023 have been quite challenging for the global fintech market. Its total volume financing and the number of fintech deals globally fell from $63.2 billion across 2,885 deals in the second half of ’22 to $52.4 billion across 2,153 deals in the first half of ’23.

Despite market turbulence and funding cuts in EMEA and ASPAC, in the Americas, fintech funding grew from $28.9 billion in the second half of ’22 to $36 billion in the first half of ’23.

In the EMEA region, fintech funding fell by more than 50%, from $27.3 billion across 963 transactions in the second half of 2022 to $11.2 billion across 702 transactions in the first half of 2023.

Total fintech investment in the UK fell to $5.9 billion. In the Asia-Pacific region, fintech funding also fell, from $6.8 billion across 583 deals in the second half of 2022 to $5.1 billion across 432 deals in the first half of 2023 of the year.

In the first half of this year, high levels of funding were observed in a number of fintech subsectors. At mid-year, this figure, focused on logistics and supply chains, significantly exceeded all previous ones and amounted to $8.2 billion. And the volume of ESG-focused fintech financing reached $1.7 billion and exceeded 2022 figures.

– The Fintech sector is demonstrating active development, both thanks to existing companies and new startups that are just starting their journey. The leading figures in the industry are large companies that dominate areas such as payments, lending, digital banking and asset management. These companies can be located in different countries that actively support and develop innovations in this area, comments Sergey Kondratenko.

Geographically speaking, the fintech sector is currently experiencing significant fluctuations, with different regions experiencing different periods of growth and decline. North America, Europe and Asia-Pacific are among the leading regions in the fintech space. At the same time, North America, especially the United States, boasts a developed and vibrant fintech ecosystem. In Europe, prominent fintech capitals such as London and Berlin stand out. And the Asia-Pacific region, with countries such as China and India, offers significant growth opportunities due to its large population and increasing digital adoption.

The cloud of uncertainty in fintech continued to weigh on investors in the first 6 months of 2023. This was influenced by high inflation and rising interest rates, geopolitical tensions and devaluations in the technology sector.

The collapse of several US banks in early 2023 has also likely put many investors in wait mode.

However, as Sergey Kondratenko notes, not all the news was negative. In the first half of 2023, a number of sectors attracted strong funding.

Financial technologies focused on supply chains and logistics attracted $8.2 billion in the first half of the year. This is significantly higher than the annual record of $5.5 billion in 2019. “Green” fintech projects, which received funding in the amount of $1,7 billion also enjoyed increased interest.

Looking back at the first half of 2023, fintech investor sentiment can be characterized as highly selective.

Here are the key trends that have been observed in the fintech sector over the past six months:

Increased focus on operational efficiency, sustainable cash flows and profitability – from investors and fintech companies.
Continued resilience of the payments space, in particular payment infrastructure.
Declining cryptocurrency funding volumes due to challenges in the sector, as well as a growing focus on broader blockchain-based solutions.
Interest in potential use cases for generative artificial intelligence is rapidly growing, especially in the cybersecurity, Insurtech and Wealthtech sectors.

Interaction with venture funds and angel investors

When a start-up company seeks funding, it often turns to investors such as venture capitalists and angel investors, says Sergey Kondratenko. The expert points out that the difference between these concepts is difficult to determine, since ultimately they perform the same function for a company at an early stage of development. Investors provide financing so the company can continue to operate. However, while venture capitalists invest money under the collective control of a fund or firm, an angel investor invests his own money.

Consequently, the average venture fund has a much larger amount of capital under management compared to the average angel investor. Since both of them create their own investment portfolios, the average size of their investment check differs in approximately the same proportion.

– Business angels are ready to invest from $5 thousand to $100 thousand in one project (when the project includes several business angels at once, which can increase the total investment up to $1 million). Venture funds, as a rule, do not consider projects that require less than $500 thousand, explains Sergey Kondratenko.

As such, FinTech has traditionally been recognized as one of the most interesting industries to invest in by investors such as venture capitalists and angel investors.

Business angels perform the most important mission in supporting startups, helping them at the very beginning and most risky stage of development. They provide not only financial support, but also valuable advice. In a word, they provide a start and opportunities to expand connections in the business community.

As Sergey Kondratenko notes, business angel investments make up the largest share of the early-stage market. Their annual volume is estimated at 1.45 billion euros, which corresponds to approximately 49% of the total market volume.

The scale of the fintech market is easy to underestimate since investments are made not only in start-ups, but also in established financial institutions. And what’s happening now is that venture capitalists are shifting their priorities to initiatives like B2B payments.

B2B payments are payment transactions that are performed between two or more companies, clarifies Sergey Kondratenko. These may include payments for goods, services, and other business transactions.

B2B payments can be made in a variety of ways: bank transfer, checks, electronic payment systems, credit cards and others. They play an important role in the global economy because they facilitate commercial transactions between businesses and ensure efficient financial management within the business sector.

The interest of venture capitalists in the fintech market is undoubtedly related to the success in creating “unicorn” companies. They are called that because they are worth more than $1 billion. Fintech has spawned 312 unicorns in the past. However, in the current economic situation, their number is decreasing.

Sergey Kondratenko draws attention to the fact that there are a large number of strong fintech companies in which venture capitalists invest. For example, Mercury is a fintech banking platform that serves other startups by providing them with tools such as cash flow management, payment processing and analytics. Founded in 2017, the company has raised more than $150 million in funding from companies such as a16z and Serena Ventures. Mercury is now valued at approximately $1.6 billion.

Fintech industry experts note that one of the most successful European fintech companies is London-based Revolut. It was founded 8 years ago and has received an impressive $1.7 billion in funding from investors such as Ischyros New York and Da Vinci Capital.

– Cases like this indicate that investors are interested in unique technological solutions that are aimed at the mass consumer. And there will be more and more such decisions every year, says Sergey Kondratenko.

As the market stabilizes, fintech funding is likely to pick up. In particular, payment and insurance technologies and wealthtech are well positioned to continue and accelerate deposits. The expert suggests that as market conditions improve, M&A activity could also begin to increase as angel investors and venture capital funds look for lucrative deals.

DMCA

PROTECTED