The Year of Unicorns: VC Investments in Fintech More Than Doubled in 2018
Fintech companies raised approximately $39.6 billion from investors globally, in 2018 – this represents a 120% year-on-year increase compared with the $18 billion worth of venture capital that was raised collectively by the industry in 2017, according to CB Insights, a market intelligence platform.
Totaling 1,700, the number of deals struck in 2018, however, were only 15% higher than the previous year. On the other hand, the 120% surge in financing was propelled by massive deal sizes: Over 52 deals breached the $100 million mark. Together, these deals stood at $25 billion, representing over 63% of the $39.6 billion raised last year.
The substantial investment outlays also increased the number of fintech unicorns by approximately 42%; there are now 38 fintech players with a valuation exceeding $1 billion – of these, 16 acquired their unicorn status in 2018 alone. The 38 unicorns together have a combined market value of $147.37 billion.
Here are some interesting trends from the CB Insights report:
Massive growth in non-core markets
Of the 1,700 deals in 2018, around 39% were struck in non-core markets (outside the US, UK and China). Fintech funding in Latin America, in particular, increased by 167% year-on-year, with Brazil attracting the bulk of investments; Nubank, a challenger bank based in Sao Paulo, acquired unicorn status after it was valued at more than $4 billion in 2018.
Further east, in Southeast Asia, fintech financing saw a 143% year-on-year increase, with several US-based VCs investing in local players. China-based Ant Financial, too, partnered with local fintech startups to further its reach in Southeast Asia.
Non-US fintechs with banking aspirations, lowered their time to market (TTM)
In Europe and other parts of the world, more fintech companies are applying for charters with regulators so that they can function as chartered banks – a regulatory prerequisite to accept deposits from customers. In comparison, such developments have been slower in the US. Many fintech startups, particularly in the UK, are partnering with existing charter banks to avoid going through the rigmarole of applying for a banking license.
Ant Financial raised $14 billion
China-based payment platform, Ant Financial, raised an unprecedented $14 billion, in the world’s single largest fundraising round by a private company, according to Reuters. The raise, market watchers believe, augurs a massive Initial Public Offering (IPO) which is expected to take place in China in 2019. Ant Financial, which has its roots in the Alibaba Group, controls Alipay, the largest mobile payment services app in China. The $14 billion raise amounts to 35% of global fintech funding in 2018.
Regulators expressed caution, but also eased the way for fintech startups
Regulators lent a cautionary note to high profile fintech companies – consider RobinHood’s swift turnaround on “cash management accounts” after regulators and insurers expressed uncertainties about the new product offering. However, there was still some progress: In Europe and South America, Southeast Asia, and Japan, regulators eased the way for several fintech companies to open and grow operations by greenlighting proposals, granting licenses and creating fintech-friendly regulations.
Competition heats up between challenger banks and incumbents
After raising mega rounds in excess of $100 million, European challenger banks such as Revolut, N26 and Monzo, are rapidly increasing their user base and expanding into foreign markets, particularly the US. In comparison, incumbent banks are struggling to improve their digital capabilities. Meanwhile, institutional players, such as JP Morgan, Citi and Goldman Sachs, are in the process of launching a wave of new digital products.
Fintechs still shying away from going public
2018 was an underwhelming year for fintech IPOs; only three fintech companies went public in 2018, while a majority of unicorns preferred raising capital in the private market. Scaling up internally and acquiring customers, in lieu of generating profits, continued to drive their decisions; it’s also likely that the tepid reception given to other fintech companies that went public, may have been a deterrent.