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a story of declining funding, fewer unicorns and insurtech M&A • TechCrunch

If you thought the fourth quarter of 2022 felt sluggish when it came to investment activity in the fintech space, it does. In fact, according to CB Insights, the three-month period was the lowest quarter for fintech funding in the US since 2018. State of Fintech 2022 report.

But while total fintech funding globally fell significantly last year compared to 2021, the numbers were still higher than in 2020.

specifically, global fintech funding reached $75.2 billion in 2022, down 46% from 2021 but up 52% ​​from 2020. The second half of the year was particularly bleak. In the fourth quarter, only $10.7 billion in investment dollars went to fintech startups. About $3.2 billion of that, or nearly 30%, flowed to US-based companies.

Meanwhile, global venture capital funding reached $415.1 billion in 2022, down 35% from a record high in 2021.

Overall, the volume of fintech deals globally fell 8% year-on-year to 5,048 in 2022. Notably, Africa was the only major region where deals increased compared to 2021 – with a record 227 deals in 2022, an increase of 25% annualized -year. A whopping 89% of deals in Africa in 2022 were early stage – a 5-year high for the continent and the highest of any other region.

Yet funding on the continent remained lower than in 2021, it noted Anisha KothapaCB Insights’ leading fintech analyst.

“This is due to increased access to technology in the region, such as mobile devices and internet connectivity,” she wrote via email. “Currently, a large portion of the African population does not have adequate access to financial products compared to other regions, so the potential deployment of fintech solutions exploded as access to technology such as mobile phones and the internet increased.

In the US, fintech funding fell 50% in 2022 to $32.8 billion. Still, deal size only dropped 9%, reflecting another trend we saw last year: the share of early stage deals continued to dominate. On the other hand, mega-round funding and deals fell 60% and 52% year-over-year, respectively.

Kothapa was not surprised by the overall decline in investment activity given the macroeconomic environment and recovery from COVID, resulting in higher inflation and a rate hike by the Fed.

“2021 was a unique year born out of the needs for digital transformation during the pandemic,” she wrote. “On the bright side, however, the numbers for 2022 were higher than those for 2020. Therefore, investors did not shy away from giving capital. Instead, more money was given to smaller, earlier-stage deals than larger, later-stage deals, as we saw in 2021.”

Notably, the world saw a drastic drop in the number of new unicorns in 2022. Fintech specifically only saw a total of 69 unicorn births in 2022, “a massive drop” (58%) compared to 166 births in 2021, according to Kothapa.

“This decline in the number of unicorn births [for fintech] was actually smaller than what we saw for all venture capital backed companies in 2022,” she told TechCrunch. “Unicorn births for all VC-backed companies were down 86% year-over-year.

Other interesting tidbits from the report:

  • Insurtech M&A increased 40% in 2022 to 81, up from 58 in 2021. Despite the poor performance in the public markets, Insurtech was the only fintech sector to see a year-over-year increase in M&A. Overall, global fintech M&A exits fell 20% year over year to a total of 742. We also saw a 72% year over year decline in fintech IPOs, from 82 in 2021 to just 23 in 2022. There were no IPOs or SPACs in the insurtech space for the first time since Q2 2020 throughout 2022.
  • After a record year, funding for fintechs in Latin America and the Caribbean fell 71% from $13.9 billion in 2021 to $4 billion in 2022. This was the largest percentage decline in fintech funding for any region year-over-year. However, deals fell only 5% year-over-year – the lowest regional decline along with Canada.
  • The average global deal size fell 40% to $18.7 million

While some say the fintech bubble will burst in 2022, Kothapa disagrees.

“This was more of a correction that resulted from an unforeseen event like the pandemic,” she said. “Digital transformation is extremely important for organizations as they navigate more seamless ways of working and fintech is a huge part of any company’s digital transformation.”

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