Report: Fintech Investments are Getting Dried After Venture Capital Firms Pull Back
Although the crypto markets were trading at peak valuations last year in 2017, the latest report from the Boston Consultancy Group (BCG), on March 16, shows that equity funding in the Fintech space has shred by 52%.
BCG’s data is based on the study over 93 companies which shows that in 2017, Fintech companies managed to secure hardly $570 million of funding within the capital markets ecosystem, against $1.18 bln and $1.19 bln in 2015 and 2016 respectively.
BCG attributes this huge drop to the major withdrawal by Venture Capital (VC) Firms wherein the inflow of investments in fintech by VCs dropped to a mere $380 million which is 50% drop from its total of $1+ billion in 2016.
BCG says that the imbalance in the investments has been majorly due to lower spending on innovation due to “legacy IT constraints” and excessive focus on “a product/relationship model over a service-focused model with automation at its core.”
BCG notes that there has been a big shift in the strategies between the top-tier players and the lower-tier players during the period of 2017-2018. Investments by top-tier banking institutions dropped to a mere $30 million in 2017, against $46 mln in 2016 and $87 mln in 2015.
On the other hand, smaller banks stepped up their investments by three times within the fintech space. The smaller banks invested $60 million in 2017 against $20 million in 2016. The report mentions that lower-tier investors invested hugely in “post-trade fintechs, including block-chain [sic] focused R3 CEV ($107 mln) and Digital Asset Holdings ($40 mln).”
Moreover, the report also notes that investors are shifting from early stage Round-1 investments in fresh startups to favor more mature and established players or rather are preferring for later-stage investments. There has also been a reported shift in bank’s strategies from investing in seed-stage bets to rather parking their money in their own acquisitions or pumping the investment in its own product development to mitigate the overall competition.
Another shift that has been noted in the nascent fintech space is the geographic diversification. While there has been a consistent 23% drop every year in the U.S from 2013, finch investments in Europe are gaining by 39% year-to-year while finch deals in South America are on a five-year high in 2017.
One of the major fears that have resulted into the investment shifts is due to the increased regulatory pressure within the crypto space which has ultimately resulted in a lot of volatility in the market.