Global funding for venture-capital backed companies slumped 23% in the second quarter to $108.5 billion from the preceding quarter, dragged down partly by fintech for the largest decline in about a decade, according to the latest CB Insights funding report.
Fintech companies raised $20.4 billion globally over 1,225 deals in the quarter, the lowest number of deals and funding since the fourth quarter of 2020, CB Insights reported in its Q2 2022 State of Venture Report released last week. The research firm estimates that the average size of a fintech deal fell to $23 million in the first half of the year from $32 million for 2021.
U.S. fintech companies raised $8.6 billion during the most recent quarter, the most of any region, according to the report. CB Insights estimates that the U.S. accounted for 42% of the sector’s total funding.
There have been warning signs for months that venture capitalists were tightening their purse strings. Data from CB Insights released earlier this year showed a drop-off in venture investments.
San Francisco e-commerce checkout business Fast abruptly closed its doors in June. Financial challenges led to layoffs at Swedish buy now-pay later operation Klarna. Another BNPL company, Zip, scrapped plans to buy U.S.-based rival Sezzle this week, abandoning its plan to use the acquisition as a launch pad for its U.S. expansion.
“Markets, especially segments like technology, always go through cycles,” said Robert Anderson, a partner with San Francisco-based FTV Capital, which manages $6 billion. “There's no question there are companies that are out there that are finding themselves to be on a more precarious footing because of the way that they've grown and grown in a very unprofitable fashion,” he said in an interview.
Unlike other tech investors, FTV won’t invest in companies that aren’t “consistently profitable,” said Anderson, who tracks the fintech and payments space.
“And that strategy continues to work very successfully for us,” he said. “We are still investing behind companies with that profile of strong consistent profitable growth and great leadership teams, with market leading positions in products.”
He added that it can take three to five years for FTV to decide on whether to invest in a company.
Tiger Global Asset Management reportedly is becoming increasingly picky about the firms it will back. The New York-based venture capital firm is evaluating market conditions and plans to write fewer checks to startups until December, according to a TechCrunch report.
The firm’s coffers rose during the pandemic thanks to the surging valuation of tech companies such as Zoom. Its fortunes have taken a nosedive since then. As TechCrunch noted by May of this year, Tiger Global had lost two-thirds of all the gains it made in the stock funds since its founding in 2001.
