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Fintech startups begin year with blistering fundraising pace

Investors have kicked off 2021 with big bets on fintech companies, which have been bolstered by a spike in digital payments and an appetite among financial institutions for new technology.

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Investors have kicked off 2021 with big bets on fintech companies, which are seeing broad tailwinds from the adoption of digital payments and an appetite among financial institutions for the latest technology.

Just two weeks into the new year, fintech startups have already recorded 10 deals worth $100 million or more, compared with three in the same period last year, according to PitchBook data. Last week alone, more than $1.7 billion in fintech startup funding was announced.

The auspicious start builds off momentum from last year, when VC-backed fintech companies raised $41.7 billion in the second-largest annual total of the past decade, according to PitchBook data.

“2020 was really the gradually-then-suddenly moment for fintech,” said Tripp Shriner, a partner at Point72 Ventures.

The New York-based firm is also an investor in MX, which provides technology for banks to analyze financial data. With a $300 million fundraising last week, MX quadrupled its valuation to $1.9 billion.

Mega-rounds for consumer finance companies have followed the widespread adoption of digital payments amid a spike in ecommerce during the pandemic. Last week saw $300 million rounds raised by global payments operator Rapyd and the financial services unit of Indonesian ridehailing and food delivery company Grab.

But as consumer fintech has grown increasingly crowded, newer startups are targeting B2B and enterprise applications, said PitchBook emerging tech analyst Robert Le.

Take London-based online payments platform provider Checkout.com, which processes transactions for companies like Grab, Klarna and Farfetch. Last week Checkout nearly tripled its valuation to $15 billion and became Europe’s most valuable VC-backed startup after landing a $450 million investment. And expense management software maker Divvy and banking software company Mambu also closed mega-deals earlier this month.

2020 marked a year in which a couple of innovation agendas accelerated. As fintech companies pulled in fresh capital, financial institutions were in turn able to adopt new technologies to help them modernize their offerings.

With the latest spate of mega-rounds, investors are paying years ahead for what they believe these businesses can become, said Addie Lerner, founder and managing partner at Avid Ventures. The firm participated in Rapyd’s fundraising round last week and has backed fintech startups such as Nova Credit and Alloy.

Even so, there’s a risk that exuberant funding rounds could lead to excessive spending by startups.

“If you are raising these mega-rounds and investing in massive teams without being thoughtful on how you scale, you could end up with a massive burn, and not grow your top line as fast as you need to sustain it,” Lerner said.

Fintech investing enthusiasm has also caused startup valuations to swell quickly, and it potentially shrinks the pool of acquirers large enough to buy them. Last week, Visa and Plaid mutually agreed to call off their $5.3 billion deal rather than face a costly lawsuit by federal antitrust regulators. But the decision for Plaid was made easier because the company could find another buyout at an even higher purchase price, Axios reported.

“We might see some interesting acquisitions this year,” Lerner said. “But if markets continue the way they have been continuing, I actually think we will just see more and more mega-rounds with companies biding their time to continue growing and building.”
Featured image via marchmeena29/Getty Images Plus

  • james-thorne.jpg
    Written by James Thorne
    James Thorne is a Seattle-based managing editor overseeing PitchBook’s venture capital coverage and data journalism initiatives. He previously reported for GeekWire, Reuters, CNBC and Source Media. A native of Colorado, James graduated from Boston College and received his master’s degree in business journalism from New York University.
  • 1234.jpg
    Written by Priyamvada Mathur
    Priyamvada Mathur writes about venture capital at PitchBook.

    She is an Indian chartered accountant and has studied economics and journalism.
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