Fintech Declines in Q3

There is no escaping bad news, Fintech Q3 numbers are abysmal?

Fintech funding declined 38% in Q3 to US$12.9 billion

Deal size for was $20 million, down from $32 million in 2021 38% decline

155 M&A deals in Q3, one third lower than prior year

Six fintech unicorns created globally Q3 vs 48 in prior year.

Crypto start-ups (leading category) dropped sharply, to US$4.44 billion, 37% decline on prior year

THE WORLD HAS CHANGED

In eight short months, the investment ‘winds’ have shifted dramatically for start-ups, gone are the endless VC investment dollars, the lack of need for profits and huge rewards for founders via ESOP shares.

Easy money from VCs has evaporating in the inflation-induced high interest-rate environment as private investors quickly reduced risk, taking a hard look at funding start-ups, many with no profits.

The reduction in investment inflows forced VCs to pull back their own investing. They now must decide which start-up survives and which are cast off.

START-UPS RAPID CHANGE

The message to VC backed start-ups was simple and brutal: reduce cash burn quickly by laying-off staff, shelve projects, withdraw from markets, freeze R&D, and slashing all other expenses to be more self-sustaining and hope to ride out the crisis.

The problem for many start-ups is the need to raise more capital, and the risk their high valuation will not be endorsed by the investment market. The smart founders moved early, with less fanfare and didn’t seek public recognition for firing staff or closing down businesses

2022 IS A VERY BAD YEAR

Review Q3 numbers could provide some comfort verses 2020, however the trend is all going the wrong way and with more interest rates rises Q4 will be worse.

It is much harder to scale back expectations, easy to remain in denial or hope markets will turn around quickly. This is especially tough when record highs and easy valuations were all the rage just months ago.

These CB Insights and Pitchbook charts speak for themselves: