As such, in its 8th Annual State of European FinTech Report 2023, the growth investor said this year may be a lost cause for the continent’s unicorns despite an active mergers and acquisitions market, although 2024 does offer some promise. Specifically, notes Finch, U.S. and Asian investors along with strategic investors across the map have become noticeably less active. For those that survive the tumult, though, the coming year “will result in a healthier ecosystem for those that survive,” reads the report.
“Since mid 2022 we have seen an increase in investment discipline in public and private markets, resulting in less funding, lay-offs, less IPOs, flight to quality and focus on capital efficiency. This will continue to be painful for the next 12 months, but will result in a more healthy and sustainable Start-up, Hiring and Investor ecosystem,” said Radboud Vlaar, managing partner at Finch Capital.
According to the report, this new funding environment has weighed heavily on the European fintech sector in recent months. For the first half of 2023, capital raised was down 70% compared to H1 2022. Further, in 2021 and last year, the top 20 European funding rounds accounted for half the market. Now, they account for more than 60% of the market even while on average they have decreased in size.
“With investors bridging overvalued portfolio startups to bring them to profitability and struggling to find attractive exits in a grossly devalued market, we are likely to see a period of consolidation in the FinTech space as many verticals are highly fragmented, creating a smaller but more sustainable ecosystem. We should also start to see a slow recovery of the IPO market in the next semester as valuations have started to slowly pick up and inflation is declining,” added Vlaar.
From X (formerly Twitter)
Steve McLaughlin FT @FTPartners ·Sep 13
"European #FinTech deal activity slowed over the summer, with August recording less than $100 mm in financing volume. On the M&A side, PayU GPO’s sale ranks as one of the largest in the region so far this year – see more in FT Partners’ infographic: http://finte.ch/EUMonthlyFinTechDealActivity"
Additionally, the deals that were executed outside the top 20 have also faced enormous headwinds as corporate investors largely withdrew due to substantial macroeconomic uncertainty. While firms in their seed rounds did enjoy some noteworthy funding, the companies in their Series A, B and C stages were squeezed the most, per the report.
“Last year’s shake up with valuations coming down, fundraising slowing down and the exit window closing up, was painful yet necessary. Consolidation and more competitive investment flows, combined with still significant levels of undeployed capital, will bring maturity to the FinTech sector. This new normal level of activity demonstrates the refocus of the FinTech ecosystem on long term sustainability versus short term gains,” Vlaar said.
From X (formerly Twitter)
"Crypto ahead in fintech investments in France and Germany in 2023: Report The total amount of investments in European fintech fell from $27.3 billion in H1 2022 to $11.2 billion in H1 2023."
