Given the overall figure, it’s not surprising that the median and average fundraising amounts were the lowest in five years, according to the report. And although the bulk (63%) of businesses that landed investments were early-stage startups, the percentage of mid- and late-stage businesses that lured money has risen so far this year, relative to each of the past two full years, the CB Insights data showed.

“Investors are favoring later-stage companies to a greater degree than the past 2 years — especially in areas like payments and lending,” the report said. For payments, mid- and late-stage rounds made up 29% of deals, versus 21% in 2023.

Of the top ten fundraising rounds, three U.S. payments companies drew the most equity capital, including loyalty program business Bilt Rewards taking in $200 million; earned wage access provider DailyPay obtaining $75 million; and fuel and fleet expense management firm Coast getting $25 million.

Direct-to-consumer payments plays have taken a bigger hit than business-to-business payments operations, noted FTV Capital Partner Rob Anderson. Consumer-focused fintechs have “gotten hit really hard,” he said in an interview last week. “It's very cyclical, and those models have that sort of risk. I think you have seen really good resilience in the business models of B2B-focused fintech payments.”

FTV’s portfolio is solely focused on fintech B2B company investments, including Vagaro, an integrated payments software business focused on salons, spas and fitness centers, as well as cross-border processor Ebanx.

Exits for investors remained low as well, with just ten acquisitions and one initial public offering during the first quarter, up slightly from the fourth quarter when there were eight acquisitions and one IPO, CB Insights said.

Payments companies may be attracting higher prices too because they tend to benefit easily from higher transaction volumes, without much additional cost.

“We believe that payments companies are likely fetching premium multiples because payments businesses have a natural embedded inflation hedge,” said PitchBook Emerging Technology Analyst James Ulan said in a May 17 report from that research firm.

Other venture capital research regarding the broader fintech arena showed a similar downturn. “The funding activity is a far cry from the boom period of 2021 and 2022, when the industry saw north of 850 deals and just under $20 billion on average every quarter,” S&P Global Market Intelligence said in a report last month.

Data from S&P Global showed payments players drawing $1.41 billion in 127 funding rounds during the first quarter, down from such companies luring $3.5 billion in 151 rounds in the year-earlier period.

S&P Global noted that an increasing number of businesses incorporate payments plays, and said it doesn’t take into account all the software-as-a-service sellers. “We do not capture all fundraisings by vertical SaaS companies layering on payments and financial services, unless we believe payment-processing fees or fintech-related services will surpass their core software revenue,” S&P Global said in the report. “However, we see growing evidence of vertical software companies modernizing workflows around payments, although these models do not meet our definition of fintechs.”

Despite the lousy early figures this year, QED Investors Partner Laura Bock said last month that there’s reason to be hopeful about the fintech outlook. The firm, which has a focus on fintech investing, closed on two investment funds worth a combined $925 million last year.

“We have a lot of capital to deploy, and we we're starting to see some momentum,” she said in an April interview, noting a few companies in QED’s portfolio had raised money in the past several quarters. She also noted that her firm had “been writing checks into net new opportunities at a higher rate than last year.” The ice is beginning to melt on what was a wintry period, she said.

James Pothen contributed to this story.

 

By Lynne Marek on May 30, 2024
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