Venture capital investment in US fintech is currently experiencing a downturn, remaining close to a six-year low for the sector, as reported by Silicon Valley Bank.
Fintech-focused VC fundraising has declined by 91% since peaking in 2021, with funds raising $5 billion through September. The total amount of announced funds, including those that have not yet closed, stands at $9 billion, marking the lowest level since 2020.
In 2024, only one in twelve VC dollars was allocated to a fintech company, a significant drop from one in five dollars in 2021. Deal flow is now increasingly tilted toward early-stage investments, with more than three seed investments for every one Series A. In 2021, fintech deals exceeding $100 million accounted for 65% of the sector’s activity; this figure has now fallen to 34%.
VC firms are also reducing their pace of investments in fintech. In 2021, the top 100 active US fintech investors were completing over two deals per month. This year, that figure has decreased to less than one deal per month.
Despite these challenges, artificial intelligence is emerging as a positive trend. Since 2021, mentions of AI in fintech corporate earnings calls have quadrupled. AI-native companies in the fintech space are generating more value per invested dollar compared to legacy first-generation fintechs, with the median for 2024 VC deals at 4.0x for native AI versus 2.7x for legacy counterparts.
Nick Christian, head of national fintech and specialty finance at SVB, expressed optimism about the future: "While fintech companies face challenges, we anticipate a broader recovery in investment to begin in 2025, as opportunities in the industry continue to emerge."
He noted that US fintech companies are enhancing their efficiencies, with nearly 80% showing improvement in EBITDA margins year-over-year, and almost 30% now having six to twelve months of runway left, up from 20% a year prior. Generative AI is creating new avenues for value in fintech, enabling legacy firms to reduce labor costs and AI-native companies to develop innovative solutions.
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