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CB Insights: Canadian Fintech Funding Dropped 70 Percent in Q2-2022 YoY

Betakit | Jul 21, 2022

Canadian fintech funding Q2 2022 - CB Insights:  Canadian Fintech Funding Dropped 70 Percent in Q2-2022 YoYThough funding for Canadian FinTechs is down quarter-over-quarter, there is still a good amount of capital flowing into the sector—though it remains to be seen how the rest of the year will play out given the current turbulent economic and market conditions.  Canada’s FinTech sector has entered a cooling down period, relative to the amount of funding activity in the country last year. Even on the international stage however, Canada continues to see much lower deals by number and amount invested compared to other regions.

  • While Canadian FinTech funding has already reached 58 percent of 2021’s annual total so far this year, Q2 2022 saw a dip in total deals and a dramatic dropoff in total funding according to CB Insights’ latest State of Fintech report.
  • The report found that funding poured into Canadian FinTech companies in Q2 2022 has plummeted by 75 percent quarter-over-quarter, from $1.2 billion to $300 million.
  • Early-stage companies saw 71 percent of the deals made in the first half of the year, followed by mid-stage businesses receiving 13 percent of that pot, with late-stage firms securing 7 percent.

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  • The amount of deals also decreased by 36 percent quarter-over-quarter. In total, there were 28 deals completed in the second quarter of 2022, down from the 44 deals made in Q1 and a five percent drop from Q2 2021.
  • The amount of mergers and acquisition exits dropped to 7 in Q2 2022, a slight decrease from 10 M&A exits in the previous quarter. Canada only saw one SPAC and one IPOs each in this quarter, which is in line with the same period last year.

Who was funded?

  • Calgary-based Neo Financial’s $185 million CAD Series C round in May was crowned the top equity deal in the quarter. That funding round also made Neo one of Canada’s latest and youngest unicorns, providing the two-year old FinTech startup with a more than a $1 billion valuation.
  • Second to Neo is Toronto startup Delphia, which closed a $75.2 million CAD in Series A round in April. Delphia is followed by Vancouver company MeetAmi Innovations’ $29 million seed financing, as well as Toronto-based Pine’s $27 million CAD investment round.
  • Other Canadian FinTech firms that have also raised a sizable amount of capital in the second quarter include VirgoCX, Altrio, Mash, Moves, Emma, and Uplinq.

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Fintech investors

  • The country’s top FinTech investors for Q2 2022 were the Ontario Teachers’ Pension Plan and Portage Ventures, which tied with 4 deals. Intact Ventures and N49P followed, joined by Georgian Partners, Loyal VC, Luge Capital, Whitecap Venture Partners, and Xpand Capital.
  • Among the other regions named in the report—United States, Asia, Europe, Africa, as well as Latin America and Caribbean—Canada had the second lowest number of FinTech deals in the quarter, beating only Australia.

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Financial Times | Nicholas Megaw and Imani Moise  | Jul 18, 2022

Half a trillion dollars wiped from once high-flying fintechs

More than 30 fintechs have listed in the US since the start of 2020, according to CB Insights data, as investors flocked to companies they believed could benefit from a long-term shift toward digitisation accelerated by the pandemic.   However, concerns about rising interest rates, lack of profits and untested business models as the economy heads towards a potential recession have put them at the sharp end of this year’s sell-off.

Shares in recently listed fintechs have fallen an average of more than 50 per cent since the start of the year, according to a Financial Times analysis, compared with a 29 per cent drop in the Nasdaq Composite. Their cumulative market capitalisation has fallen $156bn in 2022. If each stock is measured from its all-time high, around $460bn has been lost.

A second-quarter update from online lender Upstart last week typified the challenges facing many fintechs. The company, which says it uses artificial intelligence to make consumer loan decisions, blamed the “tumultuous economy” for slowing down revenue growth and driving up losses.

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The pressures have also hit more well-established companies like PayPal and Block — formerly known as Square — which have shed almost $300bn in market cap between them this year. The decline in public market valuations has filtered through to private companies. Klarna slashed its price tag from $46bn to under $7bn in a private funding round earlier this month, and the Wall Street Journal reported this week that Stripe had cut its internal valuation by more than a quarter.

Some companies also face additional pressure from regulators. The Securities and Exchange Commission is reviewing perceived conflicts of interest created by “payment for order flow”, the main source of revenue for online broker Robinhood, and SEC chair Gary Gensler has called for clearer oversight of cryptocurrency markets. The Consumer Financial Protection Bureau also launched an inquiry into “buy now, pay later” firms last December.

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