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Exit value in 2020 has already exceeded last year thanks to acquisitions of Plaid and Credit Karma
As the fintech space has matured over the last decade, it has been on an almost unceasing upward trajectory, growing consistently in both dollars and deals every year since 2012. A space that once saw around 1,000 deals a year now sees over 3,000, with funding growing from $3.5 billion to more than 10x that amount.
Then, suddenly, the space saw a huge drop in 2019.
According to a new report out from Crunchbase on Wednesday, there was $42.6 billion invested in 2019, across 3,423 deals. That represents a decline of over 25 percent and 22 percent, respectively, from the $57.2 billion invested in 4,392 deals in 2018.
Why did the numbers suddenly drop so quickly? Well, there's another way to look at it: 2018 was perhaps a bit of an outlier, having seen tremendous growth not only in deals, which went up, by 16 percent but even more so when it came to funding, which nearly doubled year-to-year.
Case in point, 2019 still managed to be the second largest year for fintech ever, even with numbers dropping by such large amounts. Also, as Crunchbase points out in the report, by simply removing one giant single deal from the 2018 numbers, the $14 billion raised by Ant Financial, the difference in funding in 2019 drops to just $600 million, or 1.3 percent.
So, yeah, the fintech space is still doing just fine. In fact, fintech is now a much larger percentage of the venture space than it was a decade ago: back in 2010, financial services represented 10 percent of total venture funding, and that number was 16 percent in 2019.
How will COVID-19 affect the space?
Given the trend over the last decade, it would at first blanch look like 2020 was most likely to be another year of growth for the fintech space. In fact, there are already promising signs. In all, there were 177 exits in the fintech space in 2019, valued at $6.1 billion. That was down 8 percent in terms of deals from 2018, and a steep 49 percent. 2020, however, has already passed the acquisition value for all of last year, thanks to just two major deals.
In January, Visa bought Plaid, a network for people to connect their financial accounts to their fintech apps, for $5.3 billion. That was followed by Intuit, the company best known for its tax software, including TurboTax and QuickBooks, acquiring Credit Karma, a company that provides free credit scores and credit reports, for $7.1 billion. The second deal alone surpassed the total acquisition value of the year prior.
However, what happens going forward is unclear thanks to the coronavirus throwing a wrench into the works. The virus has shut down a huge percent of the world economy and thrown numerous industries into chaos, perhaps even sending some to their impending financial doom.
So, what happens now? That isn't entirely clear, of course, but there are adjustments that will need to happen according to Satya Patel, founder of Homebrew, who was quoted in the report.
“Our B2B companies will need to prepare for longer sales cycles and shrinking budgets. Our B2C companies will need to adjust to reductions in consumer spending and greater emphasis on short term cash needs,” he said.
“The hardest hit fintech businesses will be lending businesses that have large outstanding loan balances and that will have to deal with lots of uncertain credit risk. In general, an increasing emphasis on unit economics over growth, will put some companies in a very difficult fundraising position.”
Crunchbase also noted that it sees a potential upside for at least some companies in the space, especially those that are betting on a cashless future, as businesses may go card only to stop spread of disease, as well as those companies that provide benefits to workers and to the unemployed.
(Image source: datadriveninvestor.com)
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