The quarterly "State of Fintech Q1'21 Report", published by CB Insights provides a recap of global funding trends, sector-by-sector analysis, as well as a recap of major happenings in the fintech space during the quarter. This report also serves as a guide to what segments of banking are being prioritized by the marketplace.
In the first quarter of 2021, fintech firms worldwide raised $22.8 billion in investments through 614 deals. – more than doubling the amount raised in the fourth quarter of 2020 – and representing the largest venture capital-backed fintech funding quarter ever, according to research released by CB Insights. The first quarter 2021 numbers even surpassed the the previous funding record from Q2’18 that included Ant Group’s $14 billion funding round.
Much of the growth in the first quarter can be attributed to the 57 mega-rounds of $100 million+ that occurred in the first quarter. This was the most mega-rounds ever, accounting for 69% of total funding in the quarter. This made the average deal size for Q1’21 almost double what was seen in Q4’20 – from $19.3 million to $37 million.
North America led the fintech funding race (264 deals/$12.8B), followed by Europe (151 deals/$5B) and Asia (147 deals/$3.7B). Combined, these three regions accounted for over 90% of the total fintech funding for the quarter. While Australia (11 deals/$193M) and South America (20 deals/$999M) both saw modest increases in deals, Africa saw a 22% drop in deals during Q1’21 (21deals/$45M). Europe saw funding growth almost triple quarter-over-quarter, attributed to mega-rounds which accounted for 68% of the continent’s total funding for the quarter.
Seeing where venture capital money is flowing helps traditional banking organizations understand what financial sectors, regions and specific competitors are drawing the most attention in the marketplace. This perspective can assist in prioritizing strategies.
When the funding is broken down by sectors, there were some that saw significant growth in Q1’21, while others saw only modest gains. The largest levels of funding were in the payments, digital banking, digital lending and wealth management sectors. A recap of the key events in all eight sectors covered by CB Insights is provided below:
During the first quarter of 2021, the number of M&A deals for VC-backed fintech companies hit new highs (67), with IPOs following suit (11) during the period. While most of these exits came into the market with very high valuations, performance since going public has lagged the S&P performance since the first of the year.
While the focus around fintech investment is usually on venture capital (VC) funding, traditional banks are increasingly investing in fintech firms.
A recent research report from CB Insights provides insights into where three of the top banking organizations are investing in fintech firms. According to the report, Goldman Sachs and Citigroup are among the most active investors, through their investment arms GS Growth and Citi Ventures respectively. The two firms have participated in 69 and 51 fintech deals respectively from 2018 through 2020 across a broad array of fintech sectors.
Goldman Sachs has focused much of its recent M&A strategy on wealth management, alternative lending and capital markets. Citi has also focused on the capital markets sector, backing 13 deals in this area since 2018. Citi has also made investments in the payments and wealth management sectors.
Finally, JPMorgan focuses their fintech investments on the capital market and small business sectors. According to CB Insights, the company has invested in 12 capital markets deals and seven in SMB solutions between 2018 and 2020. JPMorgan also made four investments in wealth management and four in payments.