Everyone knows that the VC funding scene is nothing prefer it was in 2021 and early 2022. With Q3 of 2024 behind us, we now know that fintech continues to be experiencing a funding downturn. In actual fact, each deal numbers and funding totals are down from Q2 of this yr, with 179 fewer offers and $2.4 billion much less in funding quantity.
Whereas the drop is sobering, nevertheless, there are a couple of shiny lights in latest funding information which will sign the potential begin of a constructive turnaround. I took a have a look at CB Insights’ latest State of Enterprise Q3 ’24 Report, and listed below are my main takeaways.
Areas of micro progress
As talked about beforehand, there are a couple of features of CB Insights’ latest information that provide indicators of potential restoration:
Deal sizeThe drop within the common measurement is leveling off. To date in 2024, the common deal measurement is at present $12.7 million, and in contrast the 2023 common measurement of $13.2 million, deal measurement falls round $500,000 quick. That is a lot smaller than the $3.2 million drop that came about from 2022 to 2023, and appears fairly favorable when in comparison with the $11.6 million drop from 2021 to 2022.
Even higher information is that the median deal measurement has elevated for the primary time since 2020. So far in 2024, the median deal measurement has elevated by $1 million. This comes after the median deal measurement dropped by $700,000 from 2022 to 2023 and decreased by the identical quantity from 2021 to 2022.
Resilience in early-stage investmentThe information relating to deal stage distribution reveals that 71% of offers are nonetheless going to early-stage firms. This implies that buyers stay optimistic about long-term innovation in fintech, even when they’re at present extra conservative with growth-stage investments. Traders’ concentrate on early-stage firms may sign that they’re planting the seeds for future progress, and could also be anticipating a restoration within the fintech sector.
Areas of concern
There are, in fact, nonetheless some much less constructive features of the Q3 funding information, notably, M&A exercise and unicorn valuations.
M&A atmosphere
The information signifies that curiosity in acquisitions is dropping. Within the third quarter of this yr, we noticed 146 exits made by way of M&A. Whereas this is a rise of six acquisitions when in comparison with the identical quarter final yr, it’s down from each the primary and second quarters of 2024, which had been 161 and 159, respectively.
Elevated M&A exercise usually means that the market is stabilizing, so the lower means that buyers are both nonetheless involved about market situations or are holding out for decrease rates of interest.
New unicorns
The variety of new unicorns has dropped. Within the third quarter of 2024, there have been simply two newly minted unicorns. This degree is the same as what we noticed within the first quarter of final yr. The variety of new unicorns has dropped from three within the second quarter of final yr and from seven within the first quarter of this yr.
Is that this the underside?
Wanting on the information, it could seem that we’re fairly near the underside of the fintech funding droop. And whereas I mentioned that final yr at about this time, this yr, we have now small alerts to again it up. Particularly, the primary improve within the median deal measurement since 2020 is sort of encouraging and should point out the potential for elevated investor appetites.
Picture by Mikhail Nilov
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