European fintech funding plummeted in the first half of 2023 as the sector faced up to the return of investment discipline which has triggered a fight for profitability to survive, says a Finch Capital report.
European fintechs raised €4.6 billion in the first half of 2023 across 463 deals, down from €15.3 billion from 884 deals in H1 2022.
In 2021 and 2022, the top 20 funding rounds in Europe accounted for 50% of the market, they are now accounting for over 60% of total deal volume whilst having largely decreased in size. Seed rounds continued to attract funding, but companies in the Series A to C stages are getting squeezed the most.
M&A activity was still only down five per cent, showing an appetite to do deals at the right prices, although there was a 84% decline in transaction sizes. Public markets remained closed however, as valuations have bottomed out.
Meanwhile, the fight for profitability came into real focus as the industry suffered from more than 3000 layoffs. Despite this, the sector is still hiring, with the 10 fastest growing fintech companies having hired +1050 people in the past year.
Overall, the UK showed more resilience than some other countries and accounted for over 50% of the funding in Europe. Regions like the Nordics, Poland and France and Nordics held up through some bigger crypto funding rounds.
Radboud Vlaar, managing partner, Finch Capital, says: “Since mid-2022 we have seen an increase in investment discipline in public and private markets, resulting in less funding, lay-offs, less IPOs, flight to quality and focus on capital efficiency.
"This will continue to be painful for the next 12 months, but will result in a more healthy and sustainable start-up, hiring and investor ecosystem.”