US payments startup funding cut in half last year


Dive Brief:

  • U.S. payments startups lured venture capitalists to more fundraising rounds than any other part of the world during last year’s fourth quarter, but it trailed other parts of the world in dollars raised, according to a CB Insights report released Wednesday.
  • The U.S. tallied 65 payment startup investments, 35% of the world’s 188 overall, compared to Asia’s 51 and Europe’s 33, but the nation attracted only $900 million, or 26% of the worldwide $3.4 billion, compared to $1.1 billion for the continent of Asia, and $1 billion in Europe.
  • For all of last year, U.S. payments companies raised $6.6 billion, a CB Insights spokesperson said, less than half of the $13.4 billion across 239 investments in 2021. The spokesperson couldn’t immediately provide a total number of U.S. payments investments for 2022.

Dive Insight:

Worldwide, venture capital invested in payments companies was cut nearly in half last year, dropping to $20.8 billion, from $40.5 billion in 2021, CB Insights said in the State of Fintech 2022 report. The number of investments fell just 7% to 956 for the year, from 1,032 in 2021, underscoring the smaller deal size last year.

The fourth-quarter global dollar figure was the lowest quarterly amount since the fourth quarter of 2020, when the dollars added up to $2.7 billion.

The data is yet another indicator the venture funding landscape has changed in the payments and fintech world, reflecting economic shifts and investors’ tighter purse strings.

As the climate shifted in the first half of 2022, many of the nine-figure funding rounds that had become common in the payments space began to disappear. Research firm Pitchbook recently put the U.S. payments funding total last year at $2.92 billion across 46 investments.

Despite the worldwide venture funding decline, payments startups led the fintech pack when it came to fourth quarter funding. Banking followed with those companies landing $1.8 billion across 62 rounds, wealth tech collected $1.7 billion across 164 investments, digital lending captured $1.6 billion across 121 rounds, and insurtech accumulated $1 billion across 106 investments, CB Insights said.

Investor skepticism of later-stage startups’ ability to scale and become profitable has made it harder for those companies to secure funding, analysts have said

That was evident in payments funding trends, with the share of fundraising rounds for early-stage startups reaching about two-thirds of overall investments, climbing to a 5-year high. That category comprised 65% all funding rounds, up from 58% in 2021, CB Insights said. Mid-stage investments last year made up 15% while late-stage added up to 11% and other tallied 10%.

Additionally, average investment size in payments fell 43%, to $27 million for 2022, and median investment size dropped 39%, to $5 million, CB Insights said. 

The global payments investment count experienced a slight uptick in the fourth quarter (188) over the third quarter of 2022 (183), but still came in well below any quarterly figures from 2021. In the fourth quarter, payments welcomed just one new unicorn – Bilt Rewards, a New York-based startup focused on rewards for rent payments. That company had a valuation of $1.5 billion when it raised $150 million in October 2022.

All payments exit activity dropped in 2022, CB Insights said. Globally, payments mergers and acquisitions fell 39%, to 54, initial public offerings tanked to just two from 20 in 2021, and special-purpose acquisition company exits declined to just one from four in 2021. 

In the broader fintech space, U.S. fintech funding plummeted last year after a record year in 2021, CB Insights said. Total funding dropped 50%, to $32.8 billion across 1,863 funding rounds. Fintech funding also fell on the global stage, the research firm said in a report last week.

With respect to worldwide funding during the fourth quarter, venture capital firms continued to lead other types of investors in terms of share of capital provided, offering 28% of the funding, compared to less than 20% for other categories, including angel, corporate, private equity or other investors.



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