Fintech investment isn’t dying. It’s changing.
Good morning, and welcome to Protocol Fintech. This Tuesday: what fintech VC looks like in 2022, Coinbase under fire from the SEC and CFTC Commissioner Caroline Pham’s take on crypto.
Off the chain
We don’t need another hero. Or a super app. It’s an article of faith in fintech now that payment apps need to add shopping, social networks need payment options and digital wallets need to replicate physical ones, including room for those lengthy receipts no one asked for. What if consumers just want their apps to, I don’t know, not crash and deliver information and functionality quickly? After a steady drumbeat in 2021, I haven’t been hearing as much lately about super app ambitions, which seem to have crashed alongside valuations. Perhaps it’s another blessing of this economy.— Owen Thomas (email | twitter)
Taking stock of fintech startups
Rising interest rates and inflation continue to rock fintech and, along with it, VC investment in the sector. PitchBook shared a sneak peek of its forthcoming Q2 fintech report with us, and it shows that private-company investment hasn’t been immune to the forces savaging public-company valuations. But the data also reveals a more nuanced picture of what’s happening to fintech startups.
Think evolution, not apocalypse. If you were only reading Twitter, you might think venture capital funding was frozen over. In reality, VC firms are cutting about the same amount of checks, but with smaller dollar figures.
- Fintech companies raised about $29.3 billion across 1,233 deals in the first quarter, and about $21.1 billion across 1,227 deals in the second quarter.
- Many VCs say they’re shifting toward investing at an earlier stage. And early-stage investors are considering investments with a potential recession in mind. “We’re evaluating newer companies as to how agile they are and how they’re planning to operate in this market over the next couple of years,” said Flourish Ventures managing partner Emmalyn Shaw.
- According to PitchBook, the median angel or seed deal jumped from $2 million in 2021 to $3 million this year. Growth-stage rounds, meanwhile, were basically flat, dropping from $20.2 million in 2021 to $20 million in 2022.
Fintech investment is still riding high. 2021 may have been an anomaly, with $121.6 billion raised, but 2022 investment in the sector is still historically strong.
- In all of 2020, fintech companies raised $47.9 billion, about $2.5 billion less than the first-half total for 2022.
- Exits are another issue, however. Fintech companies scored nearly $332 billion from blockbuster IPOs and other deals in 2021, according to PitchBook. In 2022, the IPO window has mostly slammed shut, and public companies with sinking valuations have less stock to splash around on deals. Exit values for the first half of 2022 totaled around $13.3 billion. Exit values in 2020, for comparison, were about $37.6 billion.
- That’s another reason why early-stage deals are more attractive than late-stage right now, since those smaller, younger companies can wait out current market conditions.
The global game is shifting. Until 2020, most of the largest fintech venture capital deals were in China. Now deals are diversifying across Europe and Latin America.
- China’s shifting policies on tech and private sector investing, combined with industrial uncertainty due to lockdowns, have chilled venture investing in the country. Though Sequoia China just closed a $9 billion fund, it’s an outlier. Smaller firms including Genesis Capital, Centurium Capital and Xiang He Capital are struggling to raise, the Financial Times reports.
- Meanwhile, Latin America has become a testing ground for neobanks, cross-border payments and other tech-enabled financial services designed to serve a young, growing and relatively underbanked population. On-trend investors call it the “LatAm thesis.”
- European companies have received more checks in recent years, too. Rounds for Checkout.com, Trade Republic and Klarna helped boost the European numbers in PitchBook’s data.
There are other findings in PitchBook’s data, which will come out in a full report next month. Investments appear to be shifting away from consumer-facing products, after sky-high valuations for categories of businesses like “buy now, pay later” fell to surprising lows. More investment is going to business-to-business payments, by contrast. The kind of fintech that will garner investment in 2022 looks different from a successful fintech even a year ago. But there’s still plenty of money in the business of money.
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On the money
On Protocol: CFTC Commissioner Caroline Pham told Protocol’s Benjamin Pimentel that getting crypto regulation right is crucial for the U.S. and requires that the CFTC and SEC work together.
Coinbase is facing an SEC investigation over unregistered tokens. Separate from the recent insider trading case involving token listings, the exchange is reportedly fielding inquiries about its expanding range of cryptocurrencies, some of which the SEC suggests might be unregistered securities. This might explain why Coinbase has been loudly proclaiming that none of the cryptocurrencies it trades are securities.
A major U.S. stablecoin bill appears to be on hold. House lawmakers are delaying consideration of a bipartisan bill that hoped to curb potential risks posed by stablecoins for at least several weeks.
The CFTC is launching a new fintech office. The derivatives market regulator is upgrading its LabCFTC initiative into an Office of Technology Innovation that will direct fintech and digital assets oversight.
Also on Protocol: The OCC is looking for new research on the impact of fintech on banking markets.
Zipmex is looking for cash. After freezing some withdrawals last week, the Asia-focused crypto exchange is seeking to raise at least $50 million to repair its balance sheet.The crypto crash is not slowing crypto lobbying. Lobbying expenditures by crypto firms reached about $6.8 million in the second quarter, up 17% from the start of the year, according to an analysis by the Block
“[W]e have moved past the stage of digital assets as a research project,” CFTC Chair Rostin Behnam said on a webcast with the Brookings Institution Monday.Coinbase chief legal officer Paul Grewal might agree. “The U.S. does not currently have a functioning market in digital asset securities due to the lack of a clear and workable regulatory regime,” he wrote in a petition to the SEC asking it to start rule making on cryptocurrencies.
Launchpad Capital and private equity firm Castle Creek joined forces to launch a $90 million fintech VC fund serving community banks. The fund will primarily invest in mobile-first Web3 technologies.
Aptos Labs raised $150 million in a Series A round led by FTX Ventures. The ex-Novi team is reviving the Diem blockchain after the technology lost Meta’s backing in January.
Crypto corporate treasury firm Meow, which promises up to 4% yields, raised $22 million in a Series A funding round led by Tiger Global. Alex Cook, a partner at Tiger Global, says it invested in the firm because of “Meow’s prioritization of risk management.”
Blockchain security startup Halborn raised $90 million in a Series A round. The Miami-based company received funding from Summit Partners, which led the round, in addition to Castle Island Ventures, Digital Currency Group and Brevan Howard.
Italian iBuyer Casavo raised about $102 million in a Series D round along with some $307 million in debt. Exor led the equity portion, while Intesa Sanpaolo, Goldman Sachs and D.E. Shaw provided the debt funding.San Francisco-based X1 raised $25 million in a Series B funding round led by FPV Ventures. X1’s “smart” card offers distinctive benefits including the ability to shop anonymously. Investors in the round include the Chainsmokers.
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Thanks for reading — see you tomorrow!