Fintech funding fell 55% in March quarter; Y Combinator, LetsVenture Top Investors: Tracxn

Funding in fintech startups fell by 55% in the January-March 2023 quarter from the same period last year, signaling that supply in the sector continues to decline.

Investments worth $1.2 billion were made in fintech in Q1 2023—55% lower than the $2.6 billion raised in Q1 2022, according to data from market intelligence firm Tracxn. Central investments fell to $977 million in the quarter, down 44% from the first three months of 2021.

Early funding deals witnessed a year-over-year drop of more than 76% in the quarter, while early-stage deals fell 74% compared to 2021. This is contrary to the trend witnessed by other sectors, including healthcare, which saw a increase in early investments during the last quarters.

Fintech saw a 126% jump in funding compared to the last quarter of 2022. India was the second highest funded geography in the world for fintech funding in Q1 and was among the top five geographies in terms of total funding activity.

Acquisitions and public listings also remained muted in the quarter, indicating a fairly uneventful period for the fintech ecosystem.

Y Combinator is among the most active investors in the space — along with Sequoia Capital and AngelList — as well as among the top investors and most active investors, along with LetsVenture. While Premji Invest was among the top investors in Q1 2023, 100X.VC was also a top investor. Xceedance, Telama Family Office and CourtsideVC were the top early-stage investors, while Premji Invest, General Atlantic and TVS Capital Funds were the top late-stage investors.

A total of six $100 million funding rounds took place in the first three months of 2023. Companies such as PhonePe, Mintify, Insurance Dekho, and KreditBee raised funds close to $100 million during this period.

Among Indian cities, fintech companies in Bengaluru took the lead, raising $796 million in the first quarter of 2023, followed by Mumbai and Gurugram, the report said.

India continues to be an attractive market for fintech investors for several reasons. Digital payment solutions have gained wide acceptance in the country. According to figures released by the Reserve Bank of India (RBI), 128 million digital payment transactions worth $600 billion were processed in January alone. Some new regulations introduced in the country, such as restrictions on access to user data, among others, will help promote the security and privacy of users, the report added.