Finch Capital, based in Amsterdam, is a company that invests in other companies from different sectors in the various growth trends at the European level and last week, specifically on Thursday, released a new report titled “State of European FinTech”, the report is about the health of FinTech in Europe and around the world and immediately highlights how the period we are living through will be rather barren of virtuosity, a period of time aimed at the consolidation of the sector at least as long as the macroeconomic and geopolitical framework remains so complex and unstable.
Finch Capital’s study of the fintech sector
Finch Capital which focuses more on financial technology for that matter, real estate and the health sector has always focused on relatively small companies investing in them with increasing resources starting from 5 million euros up to 10 million euros setting its goal to bring them to a value between 30 and 50 million euros to generate profit by helping them with sustainable and efficient business models among them are Fourthline, Goodlord, Grab, Hiber, Twisto, AccountsIQ, ZOPA and Symmetrical.br.
With the new report, the company gives us a valuable tool that perfectly depicts the condition of European fintech.
According to the data, this sector appears to have grown significantly with an increase of $13 billion in funding over the previous year from $6 billion in 2020 to $19 billion in 2021.
Globally, the peak was even close to a trillion stopping at $966 billion, and in the same timeframe investments exceeded $210 billion for activities related to the world of cryptocurrencies and blockchain.
In last week’s report, Finch Capital mainly took into account four main trends that are significant of the future world i.e., the trends capable of giving us a sense of precisely the health of start-ups in the sector: the number of new FinTechs founded, the volume of funding, the number of hires in the sector, and the number and value of successful exits.
The slowdowns in investment in the sector are caused by uncertainty about economic conditions; business creation in this sector peaked in 2018 and then declined by as much as 80% in the past year.
The performance of the markets
Public tech markets returned to 2019 levels during the second quarter of this year and do not hint at a rebound at least as long as the uncertainty and macro environment remains so.
Private markets, moreover, have erased the 200-300% growth in the 2020-2021 ratio even as they leave analysts hopeful that 2022 will be the scene of a rebound that they consider physiological following such a lousy data of such a long duration.
The sector’s decline is also matched by IPOs and a 70% drop in mergers and acquisitions among large and medium-sized companies in the sector.
The largest single deal financings dropped significantly over the past year, and in particular taking the top 20 by order of size as a sample, they received 50% less financing in 2021 from Europe.
If we broaden the look within the global sector, investment in the ecosystem has dropped by more than 25%.
Widespread contraction in the sector is accompanied by a significant decline in employment levels; growth in new hires in fintech has fallen by 50%.
Europe, which accounts for only 10% of the total deficits in the technology sector, nevertheless received about 25% of the sector’s global funding.
The cash that a company holds derived from new revenue in private equity is called dry powder in technical jargon, and according to the report between 2021 and the current year it has declined by 40%.
Radboud Vlaar, managing partner at Finch Capital, says:
“After many years of impressive, perhaps overheated growth, there is no doubt that a worsening of the macroeconomic situation and a tight money supply are weighing on the FinTech sector. However, this does not mean that funding has run out, simply that investors are becoming more insightful and price sensitive. Our research indicates that dry dust is at an all-time high, with $ 28 billion of undistributed capital among Fintech investors.
With investors becoming more cautious about where to invest their money and potentially over-invested startups struggling to exit, we are likely to see a period of consolidation in the FinTech space as many verticals are highly fragmented, creating a more small but more sustainable ecosystem. There has always been an element of uncertainty about the long-term sustainability of valuations for some companies, particularly in growth phases. This jolt, although painful, is also necessary. Consolidation and stronger investment flows. competitiveness, coupled with still significant levels of unused capital, will bring maturity to the FinTech sector. And, despite the difficult short-term outlook for the broader economy, a new normal level of FinTech activity will pick up over the next 12-18 months, focusing on long-term sustainability.”