Long reads

What is the current landscape for VC investments in fintech?

Maximilian Schausberger

Maximilian Schausberger

Managing Director, Elevator Ventures

Following the record-breaking highs of 2021, as we have all observed, the year of 2022 has been hit by a downturn in both the public and private capital markets. In 2023, the European venture capital market exhibited signs of recovery, although the overall deal value for early-stage investments is still projected below the highs of the previous years, according to Pitchbook.

Exit Activity remains a challenge within the global VC Ecosystem. According to Pitchbook’s 2023 Annual European Venture Report, exit activity in 2024 landed at 11.8bn, down 701% YoY and the lowest level. The decline has been driven by weak public listing activity and an uncharacteristically high percentage of acquisitions.

Nevertheless, the European tech landscape has shown positive signs of growth with deal value increasing a moderate 6% quarter on quarter, and growing every quarter since Q1 2023. This suggests that the market may have moved beyond its lowest point, particularly in sectors like energy, transportation, health, enterprise software, and fintech.

AI-driven tech innovation 

The venture capital landscape is currently marked by pronounced technological and innovation drive in the field of artificial intelligence (AI). Despite a challenging year for startups and VCs,

2023 witnessed a surge in investment activities specifically directed towards AI and machine-learning startups. By the midpoint of the third quarter in 2023, VC funding has reached nearly $29 billion in approximately 2,000 companies associated with AI. Therefore, there is an evident inclination towards financing companies leading in AI innovation, driven by the advantage derived from the technology's substantial potential for scalability.

As an example, we love to see how companies like Tarfin are using their algorithms to make lending for certain target groups more accessible.  

Regulatory push in crypto

The Financial Stability Board and the European Central Bank are becoming increasingly concerned about the evolving nature of crypto-asset markets. According to their statements, should current trends continue, there could be risks to financial stability.

Hence, the EU has introduced the Markets in Crypto-assets (MiCA) Regulation to address the potential risks posed by stablecoins to financial stability. MiCA establishes specific rules, such as allowing only e-money and credit institutions to issue stablecoins and sets authorisation and prudential requirements for crypto-asset service providers. This will enable players like Bitpanda to roll-out their services through Europe.

Fintech in ESG

In 2024, new EU and US regulations are driving increased transparency and standardisation in ESG data reporting. Startups are expected to see ESG as more than just compliance, but as an opportunity to transform their business models. Beyond carbon emissions, businesses must broaden their focus to include social aspects and biodiversity.

In several industrial verticals, we see smart solutions like SESAMm supporting their clients to report on climate impact using technology like machine learning algorithms.

Banking technology

When it comes the efficiency for banking services, safety, security, and qualifications play the most important role, a characteristic that is strengthened by European regulations. Even though there is a unified regulatory framework across EU countries (provided by eIDAS regulation), consumers tend to pick their local qualified e-signature provider rather than foreign certificates regardless of the price and other factors. For this reason, there is no truly pan-European e-signature company.

Autenti can be the first one with its disruptive platform that can integrate multiple qualified e-signature and eID service providers. This allows its signatories to pick their preferred qualified certificate from the dropdown..

The landscape of venture capital investments in fintech reflects a mix of challenges and opportunities. After a downturn in 2022, 2023 witnessed a modest recovery in the European market, albeit with exit activity still facing hurdles.

However, Fintech companies showed resilience and potential for growth. AI-driven innovation garnered significant investment, with startups like Tarfin exemplifying the application of algorithms for accessible lending.

Regulatory changes, such as the EU’s MiCA Regulation, are shaping the crypto space, offering opportunities for companies like Bitpanda to expand across Europe. ESG considerations are gaining traction, with startups like SESAMm leveraging technology for effective climate impact reporting.

Meanwhile, banking technology, driven by regulations like eIDAS, sees potential disruption through platforms like Autenti, offering efficient and secure solutions. Despite challenges, fintech remains a focal point for investment, poised for further evolution and innovation in the coming years.

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