January 2, 2017
The year 2016 will be carved in our memories for many reasons – unexpected political events (Trump, Brexit, to name a few), loss of iconic figures in sport, politics, art and entertainment, significant M&A deals, and much more. More importantly, for us, 2016 will be remembered by the lessons we have learned while attentively following significant events in the financial technology sphere: the launch of a unique and promising UPI by NPCI, the rise of new influencers in the financial services industry, an outstanding transformation of relationships between former rivals both in the insurance and financial services industries and much more.
Altogether, landmark events in FinTech in 2016 led to an outstanding financial traction the industry gained and is expected to accelerate in the years to come. According to the data accumulated by the Financial Technology Partners, an investment bank focused on FinTech, in 2016, financial technology companies around the world raised a total of ~$36 billion in financing across over 1500 funding deals from over 1700 unique investors (not taking into account M&A deals).
For a better understanding of how FinTech startups performed this year and what segments have been the most financially attractive, let's take a closer look at the structure of raised funds. Across over 1500 deals, the dollar amount of a little more than 300 deals was not disclosed, which leaves only financial estimations more conservative than the total funding really is.
The hottest FinTech segments in 2016
Although Banking/Lending has been the most represented segment (29% of companies raised funds this year were categorized as belonging to this segment), Payments/Loyalty/E-Commerce companies have attracted the highest financing from investors, accounting for almost 40% of total funds raised by FinTech companies in 2016.
In absolute numbers, Payments/Loyalty/E-Commerce companies raised over $13.5 billion, followed by Banking/Lending category with $9.3 billion in financing and Securities/Cap Markets/Wealth Management companies raised $4.7 billion in 2016.
Representing less than a quarter (22%) of the funded pool, the Payments/Loyalty/E-Commerce segment secured almost 40% of total funds raised, while, with 29% of representation, Banking/Lending companies are responsible for just 26% of raised funds.
Surprisingly, Insurance companies did not amount to much in comparison to traditionally leading segments, regardless of high expectations in the community of experts. Aside from Sedgwick, which raised $500 million, HeTai and Metromile, no other representative of the segment was able to attract enough funds to come anywhere close to even Financial Management Solutions or Securities/Cap Markets/Wealth Management companies. Perhaps, we should expect certain acceleration of financial standing of the segment in 2017, as large insurers actively support former rivals.
A Timeline of the most fruitful months in FinTech funding
The beginning of the year proved to be the most fruitful time for FinTech companies around the world, with the most part of funds raised in Q1 2016 ($10.45 billion). In Q2 2016, Q3 2016 and Q4 2016, FinTech companies across segments raised $10.13 billion, $7.7 billion and $7.56 billion, respectively. January, April and September are the three months when FinTech companies were able to secure the most financing. The most ‘dry’ times for technology startups with the lowest number of financing deals were mid-year and the end of the year.
The largest FinTech funding deals in 2016
The largest FinTech deal of 2016 was secured by And Financial, which raised $4.5 billion at a roughly $60 billion valuation. As reported by TC, this round was the largest investment in a tech company, surpassing the $3 billion that Didi Kuaidi – China’s homegrown rival to Uber – brought in from investors last summer by some margin.
Ant Financial is followed by another Chinese company – Meituan-Dianping, China’s largest group deals site, which fueled January’s largest total FinTech funding by closing a colossal $3.3 billion round at a valuation of $18 billion. The company claimed that this is the largest single funding round ever raised by a venture-backed Internet startup in China.
The third place went to Nordic payments firm Nets A/S, which started trading at the end of September in Copenhagen after its shares were oversubscribed in an initial public offering. The IPO valued the company at $4.5 billion, with 52% of the firm in free float, and not including a so-called over-allotment. That made it the second-largest listing in Europe as of September 2016 after the sale raised approximately $2.37 billion.
2016 signified a growing influence of corporate investors
As FinTech gains attention across industries, it's interesting to witness a significant dilution of the dedicated VC community in a race to fund the most promising teams and products. Just a few years ago, FinTech funding was dominated by venture capital firms. In 2017, we are expecting to see a large number of corporations not closely related to FinTech per se hunting for sweet deals.
In 2016, over 1700 unique investors fueled technology startups (and larger companies), among which a significant part was represented by interesting and powerful ‘outsiders’:
The usual suspects have also been very active in funding promising ventures – BNP Paribas, Citigroup, Commerzbank, Deutsche Börse, Wells Fargo, Barclays, Westpac, Goldman Sachs, UBS, RBC, Salesforce, and hundreds of other well-known, active investors made significant contributions to the FinTech industry.
While the vast majority of the financing was provided by dedicated venture capital firms or VC arms of corporations, the number of standalone technology companies, financial institutions, carriers significantly dilutes the landscape of influencers, parting with substantial funds in the race for a disruptive company to fuel.
Among the most active FinTech investors are the regular and well-known members of the VCs community – 500 Startups with the highest number of deals participated (23), Sequoia Capital, Index Ventures, Andreessen Horowitz, Khosla Ventures and others. The rest of the investors that participated in FinTech financing rounds in 2016 expressed interest in nine or less number of deals.