๐จ๐ฆ๐๐ต Canadian Fintech Investment Drops to Pandemic-Era Levels in The First Half of the Year ๐
Monday, 11 September 2023 10:16.AM
Valuations slide to early 2020 levels as investors grapple with recession fears, KPMG in Canada data shows
Investment in Canadian fintech companies dropped three-fold in the first half of 2023 as valuations continued to slide to levels not seen since the beginning of the COVID-19 pandemic, driven primarily by macroeconomic concerns, according to KPMG in Canada.
In the first six months of 2023, investment (including venture capital, private equity and merger and acquisition activity) totaled US$353.7 million across 57 deals. That's down from the US$1.09 billion invested across 87 deals in the second half of 2022, and US$353.7 million invested across 109 deals in the first half of 2022, according to data compiled by PitchBook for KPMG in Canada.
The first half of 2023 was one of the weakest for valuations since the first half of 2020, when the COVID-19 pandemic rattled global markets and the economy. Geoff Rush, partner and national industry leader for financial services at KPMG in Canada, says it's the continuation of a downward trend that began to unfold last year.
"Investors are still quite concerned about the state of the global economy, with fears of a recession, elevated inflation and interest rates continuing to put a significant strain on valuations, and that's causing them to pause and reflect on their current investments and strategies," says Mr. Rush. "Geopolitical concerns and the failure of several banks in recent months are also playing into investors' decisions. On the latter, the fact that that some loan portfolios and investment teams have been acquired by financial institutions recently illustrates that there are still opportunities in fintech," he notes.
In the first quarter, investment in Canadian fintech totaled US$297.3 million across 30 deals, but it fell more than five-fold to US$56.5 million across 27 deals in the second quarter. In fact, Q2 was one of the weakest quarters for Canadian fintech valuations since the third quarter of 2016.
Mr. Rush says the downward trend will likely play out for the rest of the year. "While investment will continue to be weak in the second half, we will likely see pockets of activity in areas like blockchain, artificial intelligence and machine learning. There are a lot of financial services companies that rely significantly on technology and are looking to adopt more emerging technologies such as generative AI, so that should bode well for the fintech space in the near to long-term," he adds.
Canadian fintech investment in H1'23
Deal Type / Investments by Industry
โข 19 early-stage - 15 cryptoassets/blockchain
โข 15 seed-round - 7 artificial intelligence/machine learning
โข 10 late-stage - 6 payments
โข 5 merger and acquisition - 4 climatetech/cleantech
โข 3 angel - 4 regtech
โข 3 private equity growth/expansion - 2 insurtech
โข 2 buyouts - 2 cybersecurity
โข 0 initial public offerings - 2 wealthtech
Venture capital funding drops to early pandemic-era levels
Venture capital (VC) firms invested US$260.1 million into Canadian fintechs the first six months of 2023 (across 47 deals), down nearly four-fold from the last six months of 2022, when US$989 million was invested (across 65 deals), and the first half of 2022 when US$805.7 million was invested (across 95 deals). In the first quarter of 2023, VC firms invested US$203.7 million into 25 deals, falling to US$56.5 million over 22 deals in the second quarter.
The majority of deals were early-stage and seed-round investments, followed by late-stage funding rounds. There were no initial public offerings in the first half, continuing the drought from last year.
Georges Pigeon, a partner in KPMG in Canada's deal advisory practice says the early and seed round activity suggests that investors are interested in funding young, innovative companies at reasonable valuations โ a positive sign for the health and growth of Canada's fintech ecosystem.
"Right now could be good timing to launch a fintech startup as investors would be coming into the early financing rounds. At reasonable valuations, many investors have time to see their investment through, so it's a good opportunity for new fintechs to emerge," he says.
Mr. Pigeon notes a number of fintechs have managed to preserve or stretch their funding through the year thus far, but for those that need to raise funds in the near future, they might be staring at the possibility of flat valuations or even down-rounds.
"Fintechs that have been able to hold off from raising cash might find a better funding environment towards the end of the year as investors' fears of a recession abate as they anticipate the eventual plateauing of interest rate increases. We could see some stability coming back to financing markets by the end of 2023 or early 2024. Unfortunately, that timing may mean some more mature fintechs that have yet to achieve sustained positive cash flows may be facing very difficult choices by then, such as selling at down-valuation or simply shuttering," he adds.
Global fintech activity plummets, but the U.S. is a bright spot
The first half of the year was challenging for the global fintech market as investment dropped to US$52.4 billion across 2,153 deals from US$63.2 billion across 2,885 deals in the second half of 2022, according to KPMG international's latest Pulse of Fintech bi-annual report.
The U.S. fintech market was the bright spot, with US$34.9 billion invested in 809 deals in the first half of 2023, accounting for more than two-thirds of the US$52.4 billion global total. The U.S. also attracted five of the seven US$1 billion-plus fintech deals of the first half.
-
Related materials:
- 09-Oct-2024 06:51 PM ๐จ๐ฆ๐๐ต Governments Investing to Improve Ontario Farmland
- 09-Oct-2024 12:00 PM ONTARIO ๐ตโ๏ธ Ontario Connecting One Million More Women to Life-Saving Breast Cancer Screening
- 09-Oct-2024 08:00 AM ONTARIO ๐๐ต Ontario Investing in Transportation for Rural Communities
- 08-Oct-2024 10:21 AM ๐จ๐ฆ๐๐ต ๐ง๐ Governments Investing in Initiatives to Attract and Retain Agri-Food Labour ๐งโ๐พ
- 07-Oct-2024 10:38 AM โ๏ธ๐ตONTARIO Ontario Expanding Access to Mental Health Services
- 01-Oct-2024 12:00 PM ๐จ๐ฆ๐๐ต Government of Canada Announces Contract Award for Maintenance of Leopard 2 Tanks
- 01-Oct-2024 10:23 AM ๐จ๐ฆ๐๐ต Government of Canada Partners With Mila to Guide The Development of a Cultural Data Strategy for Artificial Intelligence
- 30-Sep-2024 04:39 PM ๐จ๐ฆ๐๐ต IIAC: Energizing Entrepeneurship And Investment in Canada ๐ง๐
- 25-Sep-2024 10:06 AM ๐จ๐ฆ๐๐ต Only 18% of Business Owners Would Advise Someone to Start a Business Right Now: Government Must Do More to Address Rising Small Business Costs
- 21-Sep-2024 04:23 PM ๐จ๐ฆ๐๐ต Governments Investing in Innovation to Strengthen Ontarioโs Agri-Food Sector ๐๐ฎ