In their 8th State of European FinTech report, European venture capital firm Finch Capital took a closer look at three core areas and provides an analysis of the sector.
The report forecasts trends that will likely emerge including:
(1) Impact of Investment Environment on the State of European FinTech,
(2) State of FinTech of key European Countries and
(3) Thematic Trends expected to see strong growth in the next 12 months.
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.
Sector wise, the biggest surprise has been in Payments, which saw record amounts of capital deployed in 2022. Crypto has been the main benefactor as investors flocked to early stage businesses.
Finch Capital’s report shows a drop of 70% in funding value across major markets such as the UK, Germany and France, although the share of the UK in the total funding accounted for 50% of the total capital raised in Europe, up from 45%.
M&A activity was still only down 5%, showing an appetite to do deals at the right prices, however it showed a 84% decline in M&A transaction sizes. Public markets remained closed however, as valuations have bottomed out, and with inflation declining, 2024 could create new opportunities for Europe’s highest valued companies to exit, as they are too big to be acquired.
The fight for profitability came into real focus in the past year as the industry suffered from more than 3,000 announced layoffs. Despite the backdrop described above, the sector is still hiring, with the 10 fastest growing Fintech companies having hired +1050 people in the past year (50% of employee base).
Overall, the UK showed more resilience than some others and accounted for over 50% of the funding in Europe. Regions like the Nordics, Poland and France and Nordics held up through some bigger crypto funding rounds, but overall dependence on local early stage investors is prevalent.
Sovereign Fund of Fund Investors like the British Business Bank, Enterprise Ireland, KfW, 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.
In general, countries with an active Series A-B investor base, such as the UK and France have seen valuations hold up with modest increases in post money valuations.
The shift from consumer FinTech to B2B FinTech has been taking place over the last couple of years and now that trend is here to stay.
As payment and open banking consolidate, regulation technology is driving increased enthusiasm in the B2B FinTech sector.
Finch Capital is a Growth Investor that currently focuses on 6 themes: FinTech (incl. Health and Insurance), Payments, Business Applications (Incl Accounting, Tax), Regulatory and ESG Software and Real Estate Technology. They back companies generating €2m+ in ARR by investing €5 to €15m initially and help them scale to €30m-€50m revenues by building sustainable and capital efficient business models. The firm has invested in ±45 companies including Fourthline, Goodlord, Grab, ZOPA, Twisto, AccountsIQ, Nomupay and Symmetrical.
Finch Capital consists of a team of 12 investment professionals with wide entrepreneurial experience located across offices in Amsterdam, London and Dublin.