Just two weeks into the new year, fintech startups have already recorded 10 deals worth $100 million or more, compared with three in the same period last year, according to PitchBook data. Last week alone, more than $1.7 billion in fintech startup funding was announced.
The auspicious start builds off momentum from last year, when VC-backed fintech companies raised $41.7 billion in the second-largest annual total of the past decade, according to PitchBook data.
“2020 was really the ‘gradually, then suddenly’ moment for fintech,” said Tripp Shriner, a partner at Point72 Ventures.
The New York-based firm is also an investor at MX, which provides technology for banks to analyze financial data. With a $300 million fundraise last week, MX quadrupled its valuation to $1.9 billion.
Mega-rounds for consumer finance companies have largely been ignited by the widespread adoption of digital payments, which the ecommerce sector has seen a spike in during the pandemic. Last week, global payments operator Rapyd and the financial services unit of Indonesian ridehailing and food delivery company, Grab, each raised $300 million rounds.
But as the consumer fintech space has become increasingly crowded, newer startups are targeting B2B and enterprise applications, said PitchBook emerging tech analyst Robert Le.
Take London-based online payments platform provider Checkout.com, which processes transactions for companies like Grab, Klarna and Farfetch. It nearly tripled its valuation to $15 billion and became Europe’s most valuable VC-backed startup after landing a $450 million investment last week. And expense management software maker Divvy and banking software company Mambu also closed mega-deals this month.
2020 marked a year in which a couple of innovation agendas accelerated. As fintech companies pulled in fresh capital, financial institutions were in turn able to adopt new technologies to help them modernize their offerings.
With the latest spate of mega-rounds, investors are paying years ahead for what they believe these businesses can become, said Adrienne Lerner, founder and managing partner at Avid Ventures. The firm participated in Rapyd’s fundraising round last week and has backed fintech startups such as Nova Credit and Alloy.
But there’s risk that these exuberant funding rounds could lead to reckless spending among startups.
“If you are raising these mega-rounds and investing in massive teams without being thoughtful on how you scale, you could end up with a massive burn, and not grow your top line as fast as you need to sustain it,” Lerner said.
Fintech investing enthusiasm has also caused startup valuations to swell rather quickly, and also potentially shrinks the pool of acquirers large enough to buy them. Last week, Visa and Plaid mutually agreed to call off their $5.3 billion deal. One of the reasons was because Plaid thought it was now worth more than the purchase price, Axios reported.
“We might see some interesting acquisitions this year,” said Lerner. “But if markets continue the way they have been continuing, I actually think we will just see more and more mega-rounds with companies biding their time to continue growing and building.”
Featured image via marchmeena29/Getty Images Plus
