Corporate Venturing gaining market share in FinTech landscape

08 December 2016 Consultancy.uk

While venture capital invested into FinTech companies has been slow in recent quarters, in line with a broader slowdown in startup financing globally, investments by multinationals – corporate venturing – is on the rise. Over the past 12 months the share of corporate venturing as a percentage of the total has risen to nearly one-third.

Funding for FinTech has in recent years been ramping up, jumping from 457 deals with a total value of $2 billion in 2011 to 1,162 deals with total value of $19 billion last year

Quarterly global FinTech Financing Trend

FinTech investment trends

Latest data, from professional services firm KPMG and research analyst CB Insights, shows that in the most recent quarter there were 410 deals in the FinTech sphere, totalling $2.9 billion. Under half (44%) of those deals were backed by venture capitalists, with $2.4 billion stemming from private equity and other investment vehicles.

According to the analysis, market uncertainties are affecting investor appetite. Factors include a wider slowdown in the startup landscape and fewer mega-deals (those valued at more than $1 billion) resulting in lower valuations – even while volume has risen on last year. The researchers, in addition, note that total deal value this year is likely to exceed last year’s effort, largely due to a $4.5 billion investment in Ant Financial closed earlier in the year. 

Quarterly global FinTech deal Share by stage

FinTech deal share

The breakdown of investment, by company life-stage, has shifted slightly throughout the previous quarters. While seed / angel investment hit highs in Q1 2016, at 39% of the total pie, it fell to 33% by Q3 2016. Series A funding has fallen 5% in total share from the same time last year, while the ‘other’ funding category has jumped 5% to 13%. Following a relatively large jump in Series C investment last quarter, the previous quarter has returned to its longer term trends.

Deal count and volume by continent

Continental drift

Different global regions showed relative variations in venture capital (VC) backed investment into FinTech. In terms of deal count, Europe has seen a slight decrease, falling from 42 last year to 38 this year. Asia saw a steeper decline, falling from 44 to 35. Deal value in Europe halved since the same time last year, falling from $0.4 billion to $0.2 billion. Asia too has seen a sharp decrease, dropping $0.5 billion in value; although North America showed the most volatility, dropping from $2.8 billion to $0.9 billion during the same quarters, a year apart.

Corporate venturing

An analysis of the share of corporate venturing shows that its share has been has been ticking up, from 23% of the total in Q3 2015 to a 30% share in the latest quarter.

CVC participation in global deals

The growth in corporate venturing follows from the growing interest of large companies in either acquiring innovative business models or working together with startups. Several studies have of late highlighted that the relationship between FinTechs and incumbent institutions, remains important for both parties. FinTechs, a recent PwC report highlights, are keen on collaboration, seeking to access customer bases, among others, while for incumbent institutions, FinTechs represent a key source of agile innovation. 

Across Europe, and particularly in the UK and Ireland, collaboration between FinTechs and corporates is on the increase. The collaboration is taking a number of forms, including direct engagement, as well as stimulus through accelerators and incubation hubs. FinTechs represent a source of innovation that is, in part, malleable to the current needs. Arik Speier from KPMG remarks, “From banks and innovation hubs to a broader spectrum of organisations working on FinTech platforms collaboration provides traditional institutions with a way to leverage FinTech innovations while giving FinTech companies access to the expertise and support they need to grow.”

Major bank investments to VC-backed Fintechs

Big bank investment

According to the firm’s research, the biggest investors in FinTechs include Citigroup and Banco Santander, both at 8 investments total over the past year, followed by Goldman Sachs at 7. Mitsubishi UFJ Financial group invested in 5, while UBS and Sumitomo Mitsui invested in 3 apiece. With a swathe of other banks investing in 2 or 1 FinTech. 

Brian Hughes, Partner in KPMG's US Venture Capital arm, says, "There is a lot of liquidity in the market as well as a continued demand for FinTech innovation by the large financial institutions. As such, these financials will continue to look for ways to embrace the promise of these innovations through a number of different avenues, including partnerships, direct investment and merger and acquisition transactions.”

London leads the fast growing pack

According to a recent study by Roland Berger, two thirds of European FinTech startups are eyeing strong revenue growth. The UK, in particular London, is regarded as the globe's most attractive ecosystem for FinTech's, according to reports from EY (UK is FinTech capital of the world) and Deloitte (London best global hub for FinTech).

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