Fintech, equity funding in capital markets recorded a 52% in 2017. This is according to a White Paper published by Boston Consulting Group (BCG). Last year, fintech ventures recorded $570 million from the capital markets ecosystem. This is a drop from the $1.18 billion and $1.19 billion that was collected in 2015 and 2016 respectively. The dataset by BCG covered a total of 903 companies.
According to BCG, withdrawal of venture capital (VC) firms was the major factor that contributed to the drop. Venture capital investment in fintech dropped to $380, which is less than less than the over a billion that was recorded in 2016. The figures recorded in 2017 are the lowest since 2012.
According to BCG, this underspending was caused by innovation to “legacy IT constraints” as well as the preponderance of “a product/relationship model as opposed to a service-focused model with automation at its core.
According to the white paper, there was a big shift in distribution and strategies between 2017 and 2018, characterized by lower-tier players and divergent data for incumbents. Many top-tier investment banks reduced their spending on fintech to $30 million compared to $46 million that was spent 2016 and the $87 million that was spent in 2015. However, small banks increased their fintech spending from $20million in 2016 to about $60 million in 2017.
Many lower-tier investors have continued to invest in “post-trade fintechs including Digital Asset Holdings whose spending amounted to $40 million and blockchain focused R3 CEV whose spending stood at $107 million.
According to CB Insights’s recent analysis of the fintech sector in the US sector and the BCG White Paper, many investors have been shying away from early-stage deals and are going for later-stage investments and mature companies. This was the case with Coinbase and Andreessen Horowitz with the Series B and C venture deal.
Another major change from the previous years is the geographic diversification. Fintech early-deal activity in the U.S recorded a 23% drop since2013, while Europe- fintech early-stage investment went up by 39%. Fintech deals in South America recorded a five-year high in 2017.