One of the best sources of macro information for what is going on in fintech comes from KPMG’s quarterly “Pulse of Fintech” report, and their latest does not disappoint. One of the more jolting statistics they reported is on fintech VC & PE activity, which according to the report, has nearly doubled year over year from 2016 to a whopping $5 Billion in investments this past quarter. Mind-boggling. This shows just how powerful this fintech engine is becoming, on all fronts.
NEW YORK, Nov. 7, 2017 /PRNewswire/ — Driven by robust Venture Capital (VC) funding, an increase in deal value, and strong performance by the Private Equity sector, investments in U.S. fintech companies nearly doubled during Q3 ’17 to $5 billion, up from $2.6 billion in Q2 ’17, according to KPMG’s Q3 ’17 Pulse of Fintech report.
For the second straight quarter, investment in U.S. fintech rose and deal activity remained robust at 142 deals this quarter compared to 125 deals in Q3 ’16 and 147 last quarter.
Globally, fintech investment in Q3 ’17 was strong at $8.2 billion, after more than doubling to $9.3 billion in Q2 ’17. Although deal volume declined, Q3 ’17 investment stood well above the $6.3 billion raised in Q3 ’16. Despite the decrease, fintech investment remained strong for the quarter, with positive investor sentiment across the Americas, Asia and Europe.
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The VC segment for Fintech in the U.S. remains quite robust. While deal value has slid gently in Q3, valuations are up across the board for fintech companies with later stage valuations seeing their first upward turn since a decline that began in 2015.
Exits also remain strong with the year-to-date sum of exit value already matching the full year results for 2015 and 2016.
Further, fintech activity remains geographically diversified. While the traditional strongholds of California and the Mid-Atlantic continue to attract the majority of investment, the top deals in the United States span such diverse states as Texas, Georgia, and Pennsylvania.
“We see a lot of optimism in the U.S. Fintech market – from the maturation and adoption of early stage technologies like Big Data, Artificial Intelligence and IoT to the rapid acceleration of others, such as Insurtech, Robo-advisory, Blockchain and Regtech,” said Anthony Rjeily, leader for Financial Services’ Digital and Fintech practice in the U.S. “Looking ahead, the fintech sector is expected to evolve rapidly, including both mature fintechs and large technology players diversifying into adjacent services.”
A significant number of large deals drove fintech investment in Q3 ’17. The U.S. accounted for half of the biggest deals, including: Intacct, (M&A deal at $850 million), CardConnect (Private/Public M&A at $750 million) and Xactly (Secondary buyout at $564 million). However, year-to-date median deal size for late stage deals dropped dramatically compared to 2016, to $11 million from $23.5 million.
“The focus investors have placed on finding companies with strong business models and well-defined paths to profitability has led them to be smarter and more prepared for their funding requests,” said Brian Hughes, National Co-Lead Partner, KPMG U.S. Venture Capital Practice, “As a result, while fewer companies have obtained funding, they are of higher quality than in the past.”
Other Key Findings in the U.S.:
- PE investment in the technology sector is generally growing rapidly, at nearly a fifth of overall PE deal volume in the U.S. to date.
- Robo advisory remained a big bet with the use of hybrid (i.e. human and technology) models gaining more traction over pure robo advisory.
- First time financings for fintech companies is expected to remain down but the total capital invested was on track to exceed 2016’s total by a fair margin this quarter.
- The total 2017 Merger & Acquisition (M&A) value was down significantly at $4.8 billion at the end of Q3, which is well off pace compared to 2015 and 2016.
Trends to Watch:
- Over the next few quarters, regtech interest and investment is expected to increase as traditional financial institutions look for ways to link compliance automation to other end-to-end process improvements –such as improved customer service.
- Blockchain interest could also skyrocket, should a solution move into production in any significant way.