Global Fintech Funding is On The Decline with Largest Quarterly Fall in a Decadeby Fintech News Singapore July 26, 2022
After a blockbuster year 2021, the venture capital (VC) market for startup investment is now pulling back amid uncertain macroeconomic conditions and market turmoil.
Funding is dropping, mega-rounds of US$100 million and up are declining in number and fewer unicorns are being minted, according to CB Insights’ State of Venture Q2 2022.
Venture funding drops 23%
Global funding to startups dropped 23% quarter-over-quarter (QoQ) in Q2 2022 to US$108.5 billion, the largest quarterly percentage fall in funding in nearly a decade.
All major regions saw a decline in Q2 2022 with the US and Asia seeing a considerable 25% QoQ drop each. In contract, Europe-based startups only saw a 13% decline in total funding, the smallest dip among other major regions.
Declining funding sums came along with a slowdown in mega-rounds, which secured a total of US$50.5 billion, representing a 31% decrease from Q1 2022’s US$73.6 billion.
Epic Games (US$2 billion), SpaceX (US$1.7 billion), VerSe Innovation (US$805 million), Intersect Power (US$750 million) and Singapore’s Coda Payments (US$690 million) closed the five largest rounds of the quarter.
So far, late-stage investing has been the most impacted by this year’s pullback with the median deal size dropping 30% from US$50 million in 2021 to US$35 million year-to-date (YTD). Early- and mid-stage median deal sizes, on the other hand, have remained stable, standing at US$3 million and US$31 million in 2022 YTD, respectively.
Unicorn minting slows down
In Q2 2022, only 85 new unicorns were minted globally, representing the lowest figure since Q4 2020. The number brought the total unicorn count to 1,170, equaling to a modest 6.8% QoQ increase.
The US and Europe accounted for most of the quarter’s new billion-dollar startups, with 49 and 16 births, respectively. These locations were followed by Asia (15 new unicorns), Latin America (LatAm) and the Caribbeans (4) and Africa (1).
Entrants included KuCoin (US$10 billion valuation), a cryptocurrency exchange headquartered in the Seychelles, Backbase (US$2.7 billion), a Dutch software-as-a-service (SaaS) cloud banking platform, Newfront Insurance (US$2.2 billion), a next-generation insurance brokerage, and Code Payments (US$2.5 billion), which specializes in cross-border monetization solutions.
Startup exits dip
Q2 2022 also saw a decline in startup exits, with mergers and acquisitions (M&A), initial public offerings (IPOs), and mergers with special purpose acquisition companies (SPACs) dropping substantially.
M&A deals trended down for the first time in eight quarters, dropping to 2,502 in Q2 2022, the lowest level since Q4 2020. IPOs and SPACs dropped by 15% and 26% QoQ, with 132 and 14 deals, respectively.
Notable exits in the fintech space included Bolt’s acquisition of Wyre, a crypto infrastructure provider, for US$1.5 billion, as well as the merger of Israel’s Pagaya with SPAC EJF Acquisition Corp. Pagaya manages assets for banks, insurance companies, pensions funds, asset managers, and sovereign wealth funds using artificial intelligence (AI). The deal worth a reported US$8.5 billion.
Disparate trends across Asia
Findings from the study show that venture funding trends across Asia vary greatly from one country to another.
In Q2 2022, China’s venture landscape followed global tendencies, with funding amount dipping to Q3 2020 levels and relatively smaller rounds of financing being closed during the quarter.
Japan, on the other hand, saw some dynamism as venture funding rose for the third consecutive quarter. Singapore recorded a similar trend with funding increasing 9.5% QoQ to US$2.3 billion. India is another Asian country that performed relatively well in Q2 2022 with deal counts and investment value remaining elevated compared to pre-COVID-19 levels despite a QoQ dip.
Notable fintech deals recorded in Q2 2022 in Asia include IIFL Home Loan’s US$282 million round and Rario’s US$120 million Series A. IIFL Home Loan is a digitally-enabled fintech startup from India that provides housing loan schemes, while Rario, a Singapore-headquartered startup, operates a digital collectible platform for cricket fans to collect and trade officially licensed cricket moments on the blockchain, represented as a non-fungible token (NFT).