The once-booming fintech market is hitting a few snags — and by snags, we mean a lack of funding.
But this isn’t new.
One KPMG report from last year demonstrated a whopping 81% drop in Canadian fintech investment value, along with a 22% drop in the actual number of investments. Plus, some prior-thriving fintechs with ample investment have had to cut jobs and project scope due to a newfound decrease in investment.
Now, KPMG has released an updated report on H1 2023, and the downward trend continues.
Here are some highlights from the report:
Pandemic-level numbers and weakest valuations for Canadian and global fintech investment
Fintech investments have dropped down to pandemic levels from the first six months of 2020. The last half of 2022 saw US $989 million invested in 65 Canadian fintech deals, while the first six months of 2023 saw a mere $260.1 million invested across 47 deals.
Just how significant is the drop? To put things into perspective, that’s an insane 74% drop in investment value and a 28% drop in the number of deals.
How about globally?
We see the same story. KPMG notes that the last half of 2022 demonstrated a USD $63 billion investment into 2,885 deals, while the first half of 2023 saw USD$52.4 billion invested into 2,153 deals. The drop? Down 17.8% in investment value and 25% in the number of deals. Not as bad as the Canadian market, but it’s still a significant decrease.
What’s with the downward spiral? Canadian financial services partner at KPMG Geoff Rush blames inflation and rising interest rates:
“Investors are still quite concerned about the state of the global economy, with fears of a recession, elevated inflation and interest rates continuing to put a significant strain on valuations, and that’s causing them to pause and reflect on their current investments and strategies.“Geopolitical concerns and the failure of several banks in recent months are also playing into investors’ decisions. On the latter, the fact that some loan portfolios and investment teams have been acquired by financial institutions recently illustrates that there are still opportunities in fintech.”
Canadian fintech investment more common in early-stage startups and crypto industry
Not all fintech investments are equal, according to investment behaviour highlighted in
KPMG’s reports. Here are the number of Canadian fintech investments by deal type and niche:
Deal type
Early-stage: 19
Seed-round: 15
Late-stage: 10
Merger and acquisition: 5
Angel: 3
Private equity growth/expansion: 3
Buyout: 2
Initial public offerings: 0
Industry
Cryptoassets/blockchain: 15
AI & machine learning: 7
Payments: 6
Climate tech/cleantech: 4
Regtech: 4
Insurtech: 2
Cybersecurity: 2
Wealthtech: 2
So, what does this mean for budding fintech startup founders? KPMG Canada deal advisory partner Georges Pigeon says the younger, innovative, and more modest valuations, the better chance for investment:
“Right now could be good timing to launch a fintech startup as investors would be coming into the early financing rounds. At reasonable valuations, many investors have time to see their investment through, so it’s a good opportunity for new fintechs to emerge,” he says.
Read KPMG’s full news release here.
