2021 Q1 Fintech fundraising trends
Global Fintech funding grew 39% quarter-on-quarter in Q1 2021 (compared to Q4 2020) reaching the highest quarterly total since 2018 according to CBI Insights. Whilst many expect the sector to continue growing as Fintech companies continue to leverage using vast pools of private capital; there are some fundraising trends to keep an eye on in the next 12 months.
Fintech is omnipresent
a16z, a Silicon Valley based venture capital firm, recently commented that every start-up will eventually become a Fintech company because of the need to embed transactional capabilities (think Uber!). Global management and consultancy firm, Bain & Company, also commented that Fintech may join the internet, cloud and mobile as the fourth major technology. That is to say that Fintech is here to stay.
Debt financing on the rise
Looking towards the UK, investment in the UK’s swelling Fintech sector dropped 23% in 2020, according to Financial News, despite Revolut raising the $580m. The drop came from 2019’s recording figure of nearly $6bn, compared to $4.5bn in 2020. Revolut, Checkout.com, Starling Bank and Onfido represent 47% of the capital raised. However, this could be due to some larger firms switching to debt financing to raise cash and the lasting impact of the coronavirus pandemic.
Disruptive start-ups drive M&A
The world of Fintech is changing fast with start-ups able to build computing quickly and cheaply outpacing the traditional banks and financial institutions constrained by regulation. Given this, expect mergers and acquisitions to make a rebound in the Fintech space driven by incumbents looking to accelerate their digital capabilities and by Fintech companies looking to scale. In particular, AI is set to disrupt credit ratings agencies by accelerating financial risk modelling.
Given the success of a number of tech unicorns’ IPOs in 2020, it’s likely that IPOs will be on the agenda for a number of more mature Fintech companies. Many exchanges are also making themselves more attractive to technology listings. Crowdfunder Insider predicts that the largest listings in 2021 could include SoFi, Robinhood, Stripe, Ant Group, AvidXchange and Marqeta. Coinbase, the first major cryptocurrency company to go public, listed for $75.9bn on Nasdaq in mid-April.
Special purpose acquisition companies (SPACs) are shell companies set up by investors to raise money through an IPO to eventually acquire another company. And they are increasingly becoming the go-to-listing vehicle for Fintech companies. A SPAC is a vehicle that allows companies to go public without having to navigate the arduous and expensive IPO process. According to Lend Academy, there are currently a number of current SPACs in the market looking for fintech acquisitions including Deep Lake Capital Acquisition, FinTech Acquisition V, JOFF Fintech Acquisition, Queen’s Gambit Growth Capital and Quantum FinTech Acquisition.
Investments in the Fintech asset class are increasingly being viewed through an environment, social and governance (ESG) lens driven by a demand for impact. Giorgio Mottironi, CSO & Co-Founder of Ener2Crowd, sees ESG as empowering finance and financial technology as boosting ESG. Spark Change, a Fintech that simplifies institutional investment in green financial products has closed a $4.5m funding round demonstrating the appetite for these assets.