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Fintech mega-rounds keep sector afloat in Q2, although deal activity dips

Fintech mega-rounds keep sector afloat in Q2, although deal activity dips

After a pronounced pullback in investor activity during the early days of Covid-19, the fintech funding cycle roared back into life in Q2 2020 as a number of mega rounds came to fruition.

The quarterly analysis by research firm CB Insights detected a rebound in fintech funding, although early-stage fintechs continue to suffer and deal activity continued to fall.

Funding increased 17% quarter-over-quarter to $9.3B in Q2’20. However, monthly deal activity hit a fresh low of 127 deals in April before picking up the pace in June, which saw 141 deals.

Fintech mega-rounds ($100M+) hit a new quarterly high of 28 as the largest companies in the space raised additional funding.

"Mega-rounds have become more common as successful startups are generally staying private longer," notes the report. "However, the recent spate of IPOs and IPO filings may indicate the start of a shift in this trend."

Asia was the only continent without a dollar funding rebound in Q2’20. North America, Europe, South America, Africa, and Australia all saw an increase in fintech funding QoQ while funding to Asia-based companies fell 37% to $1.6B. However, deal activity in all regions was either flat or down QoQ.

While the more mature firms in the sector continued to draw in investors, smaller firms saw a pull-back in activity, although those experiencing an uplift from e-commerce tailwinds during the pandemic remain optimistic about future funding.

Nonetheless, a recent study by Innovate Finance revealed that nearly 70% of smaller UK fintech companies have a cash runway of just six months or less and 77% are worried about their next funding round

A report released last week by the fintech trade body indicated that the first half of 2020 saw investment in the UK's fintech sector slow by more than a third as venture capitalists (VCs) chose to either keep hold of the money or invest in more established companies amid the global pandemic, mirroring the trends tracked by CB Insights

The data showed that UK venture capitalists invested $1.84bn in the first six months of 2020, a 39% decline on the same period in 2019 which saw more than $3bn invested in 263 startups.

Furthermore, over half of the money $1.84bn was invested in just five companies, reflecting the appeal of mega-round funding among investors.

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