Fintech investors appear to be favoring later-stage deals as sector takes a hit, recent data shows – TechCrunch
Welcome to The Interchange! If you received this in your inbox, thank you for signing up and your vote of confidence. If you’re reading this as a post on our site, sign up here so you can receive it directly in the future. Every week, I’ll take a look at the hottest fintech news of the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there and it’s my job to stay on top of it — and make sense of it — so you can stay in the know. Let’s goooo! — Mary Ann
I was mostly off this past week, so this edition of The Interchange may be slightly less dense than normal. Some observations, though. We saw fewer layoffs, but also less fintech-related news in general. Things were generally pretty quiet and not filled with as much controversy as weeks past. Honestly, we’re really eager for this quarter to end so we can drill down into the numbers to see just how much the funding landscape has changed compared to 2021. Until then, we took a look at some recent numbers.
Fewer deals, larger rounds – but still way down
My dear friends and co-hosts on the Equity Podcast, Alex and Natasha, last week discussed the fintech funding market not once, but twice — here and here. Meanwhile, it felt like there was a bump in fintech-related funding announcements. That got me curious enough to reach out to my old friends at Crunchbase to get some data on just how much fintech startups have raised in recent weeks. (Keep in mind that it is preliminary and there is also a lag — so there will most certainly be more deals and dollars reported for the same time periods in the future.) I was mostly expecting to see a bump in numbers. And I did, sort of. Here is what the data showed: Globally, funding was up very slightly in terms of dollars raised, but deal volume was down significantly last week compared to the weeks prior. Specifically, Crunchbase found that fintech startups raised $1.5 billion from June 16 to June 23 across 39 deals — compared to $1.4 billion raised across 53 deals the week prior and $1.2 billion across 59 deals 2 weeks prior. This tells us that there were more earlier-stage deals closing earlier this month, while this past week, we saw far fewer deals but larger round sizes.
We saw a similar trend here in the U.S. According to Crunchbase, fintech startups in the United States raised $400 million across 10 deals from June 16 to June 23. That compared to $300 million raised across 14 deals the week prior, and $300 million raised across 17 deals 2 weeks prior.
But notably, and perhaps even more startling, is the difference between these numbers compared to June 2021. Globally, fintech startups raised a total of $8.2 billion across 272 deals from June 1-23, 2021. That compares to a total of $4.2 billion across 151 deals during the same time period this year. Meanwhile, U.S.-based startups raised $1.9 billion across 101 deals from June 1-23, 2021. That compares to a total of $1 billion across 41 deals during the same timeframe this year. Whoa. That’s like nearly half the dollars raised both globally and in the U.S. So while this is just a small snapshot in time, it is still indicative of what we all know is taking place — a global slowdown in funding, and proof that fintech is not immune.
For the record, Crunchbase defines fintech as companies that integrate technology in the financial services sector.
Takeaway: Fewer funding deals are closing in the fintech space, and during the month of June at least, investors seemed to be taking more bets on later-stage companies so dollars raised actually inched upward as the month wore on. This means it is likely getting tougher and tougher for earlier-stage companies to win over VCs, who are reportedly conducting more due diligence and asking for more traction than in the whirlwind that was 2021.
The buy now, pay later (BNPL) market, estimated to be worth $120 billion in 2021, has grown significantly over the last few years. But for most of its rise to virtual checkout prominence, BNPL largely targeted everyday consumer goods like clothes from Urban Outfitters or a Peloton. Now the credit method is moving beyond its e-commerce roots. In the past few months, large companies have joined the BNPL market, also hoping to quickly approve consumers for installment loans. Rebecca Szkutak digs in here.
Speaking of BNPL, Sweden’s Klarna has (finally) launched a new loyalty card feature in its app, which it says allows users to store and access all of their physical loyalty cards as digital versions, removing the need to carry physical cards while out shopping in-store. The company is clearly working to boost its number of users considering that its valuation has reportedly been slashed from $45 billion to $15 billion, a cut that our own Alex Wilhelm deems to be “sufficiently steep.”
Scoop: Three more senior executives of digital mortgage lender Better.com have resigned, I reported last week. Those three executives are Jillian White, general manager of Better’s affiliate businesses known as Better+, which consists of its title/settlement, insurance and home inspection departments; Megan Bellingham, who was senior vice president of sales and operations; and John Moffatt, who served as vice president of sales.
Brex issued a mea culpa this week after its shocking announcement from last week to stop working with SMBs. Pedro Franceschi, founder and co-CEO, addressed the stumble in a blog post titled simply “About last week’s announcement.” In the post, Franceschi expressed regret over the “poor job explaining this decision, which eroded some of the valuable trust” Brex had built over the years. He also outlined what criteria a business needs to meet to qualify to remain a Brex customer.
Speaking of Brex and SMBs, Tillful — a free business credit app built by VC-backed startup Flowcast — announced last week that it is launching a new feature for its users through a direct partnership with Experian in an effort to better inform business credit scoring in SMB/SME lending. The startup claims it is a “first-of-its kind partnership” between a fintech and a major credit reporting agency “in an effort to make credit risk assessment more ‘open.’” Flowcast has developed AI-based credit models for lenders and is backed by ING Ventures and BitRock Capital. Since Tillful was launched, it says that over 50,000 small businesses have signed up to help manage and build their business credit.
Here is where it gets even more interesting in light of Brex’s recent news: Flowcast’s latest move, a spokesperson told TechCrunch, reflects its “doubling down on SMBs.” Brex, that spokesperson added, was actually one of its partners but Flowcast hadn’t heard from them “in quite some time as they stopped engaging” with the company months ago: “We haven’t received any communication from them either as a long time Brex cardholder and lender partner but we are moving off of their platform and will be using our own card in lieu.”
Meanwhile, Mercury — a digital bank aimed at startups — claims that it has already seen hundreds of new accounts come to its platform in the wake of Brex’s announcement and that it is “seeing more everyday,” a spokesperson told TechCrunch on June 24.
Brazilian digital real estate broker QuintoAndar launched last week in Mexico City, the first time the startup has expanded out of its home country. It will operate in the country under the brand “Benvi,” which will be the proptech’s international name. Last August, QuintoAndar announced it had raised $120 million at a $5 billion valuation. In April, the company laid off 160 people, or 4% of its staff — making it one of a few highly valued Brazilian startups cutting jobs.
While we’re on the topic of LatAm, Brazilian digital bank Neon has announced that it has hired a Silicon Valley tech veteran who has held stints at Google, Snap and Coinbase as its new chief technology officer. André Madeira is the former co-founder and CEO of Meemo, which was acquired by Coinbase last year.
Fundings and M&A
Seen on TechCrunch
Well, that’s it for this week. Once again, thank you for reading — enjoy the rest of your weekend! See you next time. xoxo, Mary Ann