Venture Capital target fintech in first quarter
Anna Irrera, April 10th, 2015
Venture capital investment in financial technology companies grew 26% globally in the first quarter from the same period last year, as fintech tries to prove it is more than just a fad.
Fintech firms raised $1.33 billion from 103 deals in the first three months of this year, up from $1.05 billion a year earlier, according to new figures from data provider Pitchbook.
The statistic follows a period when venture capitalists have poured record amounts of money into the fintech sector, with investments more than doubling from $2.12 billion in 2013 to $5.53 billion last year, according to Pitchbook.
Mariano Belinky, managing director of fintech venture capital fund Santander InnoVentures, said: “Fintech is not a fad, it’s a trend that is just starting. We are just scratching the surface as we see more areas of opportunities being attacked.”
Venture capitalists point to several reasons underpinning the continued growth, such as the fact that finance - a huge industry - is one of the last to be targeted by digital companies.
Pascal Bouvier, a partner at US-based Route 66 Ventures, said: “There is still so much catching up to do, there is no surprise levels are going up. Even though the increase might be happening all the time, it is still from a small base and still for a very large portion of the economy.”
Investment may have also been encouraged by two notable exits at the end of last year, venture capitalists say. In December, US-based peer-to-peer lender Lending Club raised around $870 million through its flotation on the New York Stock Exchange, while competitor On Deck nabbed $200 million through its listing on the Big Board.
Rob Moffat, a principal at London-based Balderton Capital, said: “Finance is a huge sector and the time seems right for its disruption across a number of axes. The Lending Club IPO also doesn't hurt.”
Allard Luchsinger, a director at Dutch venture capital firm Velocity Capital, said: “Some of the business models that a few years ago were not proven - like online wealth management and P2P lending - are now showing significant traction.”
Luchsinger expects growth to continue.
Some newly launched venture capital funds of banks also made their first moves during the first quarter. Santander’s fintech fund backed Israeli payments company MyCheck and US-based mobile operating system firm Cyanogen.
Venture capitalists expect the growth to continue, with specific fintech sectors, such as online investment management and blockchain - the underlying technology behind bitcoin - expected to draw increasing interest.
Michael Treskow, a principal at Accel Partners, said: “Asset-light business models that are disrupting large slow-moving incumbents in financial services will remain popular amongst VCs, these include crowdfunding, asset management and remittances .”
Matteo Rizzi, a general partner at SBT Venture Capital, said: “Crypto is really booming. Not just because banks like UBS are entering the space, but because blockchain is limitless, cheaper and as secure as global money transfers today.”
Swiss bank UBS is set to launch a technology lab that will potential use for blockchain in financial services.
While investments grew globally, the European market experienced a small slowdown. Europe-based fintech companies raised $253.8 million from venture capital investors in the first three months of the year, down 5% from $267.7 million in the first quarter of 2014, according to Pitchbook.
But investors believe the slight decrease is a blip rather than signs of a long-term slowdown in activity in the region.
Rizzi said: “I think investments are structurally following the same pace. The beginning of the year is usually slower than the second half.”
While Europe did not lead growth in the first months of the year, it scored a number of large deals, such as the $100 million investment in London-based remittances company World Remit, which was the third largest VC investment in fintech globally.
US-based software company Zuora ranked first, with an investment of $115 million, followed by cloud accounting company FinancialForce.com which raised $110 million.