Fintech has taken home the biggest slice of venture capital funding in Europe every year since Sifted began reporting on tech back in 2018.
But funding figures for 2023 so far suggest it may struggle to hold onto its lead this year.
European fintechs raised $2bn in the first quarter of 2023 — a massive 83% drop from this time last year. That’s less than the total raised by climate tech startups ($2.6bn) and deeptech startups ($2.9bn).
Have VCs fallen out of love?
1. Q1 funding was down 83% from last year
In the first quarter of 2022, European fintechs raked in $9.7bn.
In 2023, things are much more subdued. The overall amount raised was down to $2bn in the first quarter, and the number of fintech deals closed was also down.
212 rounds were signed in the first three months of the year — the smallest number since Q4 2015, when it also stood at 212. For the past seven years, more than 300 rounds has been the norm each quarter for fintech.
2. Climate tech and deeptech overtake fintech
While funding across all tech sectors in Europe has declined from this time last year, fintech is by far the hardest hit.
Healthtech, which has historically been less well-funded than some of the more hyped-up sectors in Europe, was almost on a par with fintech — startups across that sector raised $1.9bn in the first quarter. Investors say part of this is due to broader macro trends.
“Healthcare has traditionally been cyclical but also relatively resilient compared to other sectors,” says Shamik Parekh, healthtech investor at Octopus Ventures.
He points out that the funding slowdown has also coincided with changing priorities for institutional investor LPs in VC funds.
“Impact and returns were never mutually exclusive, but now LPs are becoming more knowledgeable about it, and naturally healthcare fits within that,” Parekh says.
3. Megarounds are dead
In the first quarter of 2022, overall fintech funding was buoyed by some hefty megarounds (deals of $100m+), including Checkout.com’s $1bn Series D and Qonto’s $552m Series D.
In the first quarter of 2023, only two European fintechs raised megarounds: UK consumer lender Abound (formerly Fintern), which raised a £250m growth equity round from GSR Ventures, Hambro Perks and K3 ventures in March; and French crypto infrastructure startup Ledger, which raised a $109m Series C in March from investors including Molten Ventures, True Global Ventures and Cathay Innovation.
This time last year, the smallest of the 10 largest fintech funding rounds was Wayflyer’s $150m Series B.
4. Lending and mortgages overtake the usual favourites
Mortgages and lending fintechs raked in the lion’s share of the sector’s funding — $635m — in the first quarter, trumping the usual suspects: payments and banking.
Financial management solutions (ie. treasury management tools like Norway’s Two) raised a total of $382m. It’s a sector investors say they’re even more hot on after the collapse of SVB UK in March.
Crypto suffered the biggest slump in funding compared to this time last year, dropping tenfold from $3.4bn in the first quarter of 2022 to $343m in Q1 2023.
5. Consumer fintech is out of vogue
Business-facing (B2B) fintechs raised $950m in the first three months of the year, almost double that of their B2C peers ($596m) — although the total was skewed by Abound’s large £250m raise.
B2B fintechs closed 128 deals in the first quarter of the year, compared to just 35 B2C deals.
Consumer fintechs also accounted for the lion’s share of M&A and insolvencies in the period; one notable B2B exception being banking-as-a-service platform Railsr’s firesale at the beginning of March.
UK circular economy fintech Twig acquired French neobank for teens Vybe, US savings app Acorn acquired kids neobank GoHenry, and digital bank Zopa acquired BNPL fintech DivideBuy.
Consumer-facing fintech insolvencies are also gaining ground. The latest was UK sustainable investing app Clim8, which shut down in March, following crypto investment app Nuri’s insolvency near the end of last year.
Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — you can sign up here.
