Are the valuations of Fintech startups going down?
Fintech firms have traditionally controlled the African fundraising scene, but according to data from CB Insights, sector investment fell sharply in Q3 2022.
A Crunchbase report revealed that fintech startups raised $2 billion in funding in 2021. 198 fintech firms raised $2 billion, a staggering 88.45% growth over the $231 million raised in 2020, in a record fundraising year of the continent.
All continents were affected by the drop in investment in the second quarter of 2022, but African startups appeared to be less affected than their global counterparts.
However, the statistics showed that investments in African businesses had fallen throughout the year. Startup values in practically all industries were significantly affected by the turbulent first half of 2022. One of the sectors that has been worst affected is fintech.
According to an analysis by CB Insights, funding for fintech companies has been on the decline recently, falling 33% quarter-on-quarter in Q2 2022 to $20.4 billion.
Nonetheless, this is consistent with a larger trend of reduced total worldwide funding, which fell 23% quarter-on-quarter in Q2 to $108.5 billion, the biggest percentage loss in nearly a decade.
Some fintech startups, especially those in the buy now pay later (BNPL) and other payment industries, are seeing declines in value that were previously unthinkable.
For example, PayPal’s market cap fell from its peak of over $360 billion in July 2021 to just over $110 billion as of August 1, 2022.
According to data from CB Insights, global fintech funding fell by a third in the second quarter, continuing a downward trend in investment this year.
Although funding is still available, the global reduction in investment confirms that many fintechs had a difficult first half of the year.
It also serves as an example of the general decline in financing and acquisitions. The decline in funding from Q1 to Q2 also underlines how external factors such as increasing financial anxiety are having an impact on fintech operations.
As values decline, neobanks would be wise to adjust their strategy, reorienting their priorities from customer acquisition to cost reduction and increasing profitability.
This involves a shift from offering incentives to low costs or fee-free and good returns to developing fresh products that generate income.
Fintech startups in 2022 had a high valuation at the beginning of the year, and a low valuation in the latter half.
There is still money available for fintechs, but companies need to be differentiated to attract investors given that the majority of neobanks are still unable to make money, regulations are coming for BNPL services, and the cryptocurrency market is starting to cool.
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