A ‘year of reckoning’ has arrived for the European fintech scene, according to growth investor Finch Capital.
The firm’s State of European Fintech 2023 report found funding for the sector dropped by 70% year on year, to levels last seen before 2020. At the same time, the report added, while mergers and acquisitions had remained stable with volumes looking to match those of last year, deal sizes had fallen dramatically. Almost one-fifth (19%) of deals were for €500m or more in 2023, compared with 30% in 2022. Overall, the first six months of 2023 saw a decrease of 84% in transaction value, compared with the same period in 2022.
“The European FinTech sector has been heavily impacted by the new funding environment, with a total of €4.6bn capital raised in the first half of 2023, down 70% from €15.3bn in H1 2022,” the report noted.
“In 2021 and 2022, the top 20 funding rounds in Europe accounted for 50% of the market – they are now accounting for over 60% of total deal volume whilst having largely decreased in size. Across the investment ecosystem, the long tail of deals outside of the top 20 have been squeezed in total capital raised and, like any previous cycle, corporate investors are retreating in the face of macroeconomic uncertainty. Seed rounds continued to attract funding, but companies in the Series A to C stages got squeezed the most.”
Finch Capital did point out that the UK had shown more resilience than others, accounting for over half of the funding in Europe. “Regions like the Nordics, Poland and France held up through some bigger crypto funding rounds, but overall dependence on local early-stage investors is prevalent.”
“The lengthening of time to fund is also particularly felt in markets like Ireland, Poland and the Nordics as investors refocus on core local markets with the bar for non-local investors rising to even higher levels than before. Sovereign fund of fund investors like the British Business Bank, Enterprise Ireland, KfW and BPI continue to back funds in the local ecosystem that allowed capital to remain in the market. France for instance, had the largest equity deal of the year with Ledger raising over €400m.”