Even as worldwide venture capital investment plunged to a six-quarter low in the second quarter of this year, emerging firms focused on financial technology managed to keep the money rolling in at the same pace, according to research from KPMG Private Enterprise.
In its "Venture Pulse, Q2 2022," which analyzed the venture funding market globally and in specific regions for the past three-month period, KPMG found that the “ongoing crisis in Ukraine, high levels of inflation and rising interest rates” had distinctly impacted most regions and investment sectors. Indeed, the global consultancy predicted that, “With no end in sight to the uncertainty, VC investment could remain somewhat soft heading into Q3’22.”
However, financial tech (fintech) and related sectors of financial industry security and cryptocurrency payments, particularly in the Americas, seem to be the exception to this trend, as VC investors reportedly move into a buyers’ market where they can expect more “focused” use of their funding.
“Against a backdrop of geopolitical, supply chain and economic uncertainty, overall global VC investment is falling,” the report found, “but several sectors, including fintech and cleantech, are beneficiaries of more selective investments.” The Americas were the most resilient area for VC investment, where companies garnered $66.2 billion in the second quarter of this year; this represented more than half of overall global VC investment for the quarter, $120.2 billion across 8,420 deals, according to the Venture Pulse quarterly report
Fintech companies represented two of the top 10 global financing deals last quarter: Ramp, based in New York City, which received more than $748 million in Series C, and Trade Republic of Berlin, which obtained $1.15 billion in Series C financing. Indeed, Trade Republic was the only company outside the U.S. in any sector to raise more than $1 billion in the second quarter of this year. (Another U.S. company, San Francisco-based Faire, also made the top 10, with a whopping $816 million investment in Series G financing.)
In the U.S. in particular, cybersecurity and supply chain companies also “continue to attract attention,” according to KPMG’s findings. While the Americas and fintech firms fared better than many other regions and sectors, they were not completely shielded from the ongoing pressures on the market.
“Late-stage unicorns” have felt perhaps the greatest impact on their capital infusions, as valuations drop and investors increasingly demand profitability. “VC investment declined in the Americas in Q2’22, particularly in jurisdictions outside of the U.S., including Canada and Brazil,” according the KPMG report, released late last week.
Case in point: Just last week, fast-growing Los Angeles-based fintech FairPlay, which aims to help reduce "bias" in lending, announced that it had raised $10 million in Series A funding in a round led by Nyca Partners, with participation from Cross River Digital Ventures, Third Prime, Fin Capital, TTV, Nevcaut Ventures, Financial Venture Studio and Jonathan Weiner.
“During Q2’22, the impact broadened, with companies raising seed and Series A rounds also seeing their valuations drop considerably,” the KPMG report pointed out. “This is driving VC investors both in the U.S. and elsewhere in the Americas to evaluate potential deals more rigorously, rather than investing because of a fear of missing out — a predominant trend during much of 2020 and 2021.”
Instead, VC firms and angel investors are looking for the sort of “stronger business cases and revenue models” that fintech firms and cybersecurity start-ups are often more likely to provide, given the demand for their products and services and the typical familiarity with financial modeling.
“Fintech will likely remain a strong area of investment in many jurisdictions around the world,” according to the report, “in addition to supply chain and logistics, cybersecurity, and alternative energy.”