Hey Fintech Friends,
Welcome to the first quarterly roundup of 2022!
For new readers, Signals is the subscriber-only edition of TWIF designed to get you away from the headlines and to explore the larger trendlines. If you haven’t already, subscribe to future editions here!
Which concepts are getting funded? 🤑
Fintech funding came off its recording-setting Q4 ’21 highs to rack up a cool $21.8 billion raised in Q1. A higher share of funding went into pre-seed and seed rounds compared to the prior quarter, bearing out predictions that venture funding would move earlier-stage companies as public tech stocks took a haircut.
Areas that saw the highest activity were:
A few concepts received notable funding, including:
Revenue-based financing, with funding to Novel Capital, Capchase, Fairplay, and Vitt promoting non-dilutive financing for high-growth businesses.
Alternative investments, with funding to CAIS, iCapital Network, Alto, AcreTrader, Gridline, and KILDE backing our ability to invest in assets ranging from farmland to artwork.
Cross-border payments, with funding to Currencies Direct, Reach, Dowsure, Mundi, Routefusion, Trace Finance promoting international money movement.
Where are exits, M&A, and SPACs concentrated? 📈
Buy Now, Pay Later continued to consolidate with Zip’s acquisition of Sezzle and Block’s acquisition of Afterpay. BNPL has been taking a hit in the public markets as the space faces growing scrutiny from regulators and concerns about the profitability of the BNPL model. As BNPL valuations dive lower, larger companies will see lower price tags on the startups they can acquire, so expect to see more big players clicking “Add to Cart”.
Neobanking went on the road, with Revolut acquiring Arvog Forex as part of its upcoming launch in India and BBVA investing in Brazilian digital bank Neon. Dave, meanwhile, concluded its roadshow with a $4 billion SPAC.
Crypto saw high crossover with non-crypto companies as TradFis took major stakes in DeFi startups in a bid to offer their own crypto functionalities. Crypto exchanges also went on an acquisition spree to diversify their offerings and expand their footprints.
Payment infrastructure companies similarly made a push to expand their geographic footprints through a string of international acquisitions, including Till Payments/ZIPS, Rapyd/Neat, Razorpay/Curlec, Shift4/Finaro, PPRO/Alpha, Worldline/Axepta.
Which firms are raising debt and venture funds for fintech? 💰
Venture funds raised funds to target fintechs around the world, notably:
Ribbit Capital, one of the most well-recognized fintech venture firms, raised $1.15B for its seventh fund (over double the size of their sixth fund).
MUFG Banklaunched a $300M fund to invest in growth and late-stage startups in India.
CommerzVentures, the VC arm of German bank Commerzbank, raised €300M for its third venture fund targeting fintech, insurtech, and climate fintech.
OpenSealaunched OpenSea Ventures, a $300M venture arm to fund NFT and Web3 projects.
Cake DeFi, a Singaporean fintech platform, launched Cake DeFi Ventures to deploy $100M into fintech, Web3, the metaverse, NFTs, gaming, and eSports startups.
Which products were launched over the last quarter? 🚀…
Fintechs launched a number of new ways for you to trade, save, spend, round up, and passively invest in crypto. Robinhood and BlockFi released crypto wallets, unlocking users’ ability to move crypto between these platforms and the broader crypto ecosystem.
Speaking of wallets, China launched a digital wallet to facilitate fiat payments that’s been adopted by over one fifth of the population. Governments in Europe, the US, and Canada are exploring launching their own central bank digital currencies, with India’s CBDC set to launch within the next year.
There was also a notable uptick in startups launching high-yield products, starting with American Express’s 0.50% APY checking account. “Hold my beer,” said TrueFi as it launched its Lending Market to give asset managers access to lending pools that offer an average of 6% APY. Which brings us to…
Q1’22 Look-back
Fintech funding in Q1 signaled a dawning theme in 2022: In order to keep pace with inflation, we’ll all need to see higher returns on our assets. Prices are set to rise by a projected 7.5% this year, but the average interest on savings accounts in the US is currently only 0.06% APY. As the gap between savings interest and inflation widens, consumers and businesses will look for opportunities to earn higher yields on their money.
Lucille Bluth’s prescient economic commentary in Arrested Development.
Neobanks typically offer higher interest rates on deposits than traditional banks, making them a more appealing place to park funds at a baseline. Current and Varo are upping the ante with savings accounts returning 4%-5% APY (up to a certain limit on deposits); Treasure is offering businesses up to 3.25% APY on business bank accounts.
In the DeFi world, investors commonly see returns in the 8%-40% APY range generated through a combination of strategies known as yield farming. A number of DeFi yield products are springing up to give users better access to these returns, but there’s an ongoing debate with financial regulators as to what crypto yield even is– and consequently, how these products should be regulated.
With inflation comes a slowdown in economic growth, which may push those invested in public companies to buy assets that aren’t correlated with the stock market. A large share of funding in Q1 went to alternative investment platforms offering these assets, notably in real estate, private startups, farmland, short-term rentals, and collector items.
Inflation weakens the purchasing power of everyone’s money, but this doesn’t mean that our cash has to sit idly on the sidelines. A number of new solutions are making it possible to earn higher yields on savings and investments– and cover losses when the price of a banana inevitably rises.
