Signals 1.1 (Q1 2021)

Hi Fintech Friends,

Welcome to the first Signals of the quarter.

For new readers, Signals is the subscriber-only feature where we consolidate the fintech events of the last quarter in order to better understand the trendlines, not just the headlines.

Signals is broken down into 4 sections:

If you believe that fintech is only 1% finished, understanding these trends is critical to developing a perspective on where the other 99% will come from.

Best,

Nik

We all know that Q1 2021 was a crazy quarter for fintech fundraising, but now we have the numbers to put that into context.

Fintechs raised $17.7 billion in Q1.

See the full Q1 fintech fundraise data here.

In Q1 of last year, fintechs raised $6.8 billion in venture capital across 130 rounds. This year’s Q1 saw $17.7 billion split across 301 deals. The high-water mark for fintech fundraising that we’ve tracked was back in Q2 2019, when fintechs raised $11.4 billion. This surpasses it by 55%. It would be correct to refer to the last quarter as a feeding frenzy.

Sources: 2019, 2019

And yet many believe that fintech as a category is still undervalued. It may be the case that, rather than peaking, we’re witnessing a new plateau for fintech fundraising (I am a little skeptical, but there are many dynamics driving this including the emergence of new funds and crossover funds, and early employees at fintech monoliths leaving to start new companies).

What was the round composition?

The fundraises in Q1 skewed towards Series A rounds in number. There were 152 named rounds of 301 total rounds. Whereas there were 39 seed rounds (including “Pre-Series A) and 7 pre-seeds, there were 56 Series As. Interestingly, the average Series D was larger than the average Series E, driven mostly by Rupeek’s $33 million Series E.

The presence of strategic investors continued into Q1: Goldman Sachs was a named strategic in two rounds. Other bank investors included Citi, BNP Paribas, Morgan Stanley, and SBI. Fintech strategic investors included Stripe, Zip, and PayPal. One of the more surprising strategics was the European Bank for Reconstruction and Development.

Of the 30 categories of company that raised funding in Q1, Investment startups unseated Payments startups to take the lion’s share of funds raised (after a year of unchallenged Payments dominance). This was mostly driven by Robinhood’s $3.4 billion raised in January to deal with market volatility, but even without their round, Investment apps still raised over $1 billion in Q1 across 38 rounds. Payments startups raised $3.0 billion across 43 rounds. Lending companies ($1.6 billion raised across 33 rounds) unseated Neobanks ($1.5 billion raised across 28 rounds) for third place.

Of the 301 rounds, the average round size was well north of prior quarters at $59 million (Q4 2020’s average round size was $28 million, by comparison). This was top-weighted by Robinhood’s round but was actually surprisingly consistent throughout many product categories - with averages in BNPL, Payments, Credit Card, BaaS, Crypto, KYC / AML, Mortgage Lending, Digital Wallets, and Superapps all exceeding $59 million.

There were a few interesting emerging categories of companies fundraising in Q1:

Diem raised a $5.5 million seed round to build a debit card that allows users to recycle old goods for money and Treecard raised a $5.1 million seed to plant trees for users as they spend to offset carbon cost.

The last quarter also saw the emergence of a new kind of fintech company that was fundraising: the Crypto / Fintech hybrid firm. Bitpanda, Fireblocks, Flux, MicroStrategy, and NYDIG all raised funds to develop both crypto and financial services products. Added to this were DeFi companies like Celo that fundraised to rebuild Venmo-type payments functionality on decentralized rails.

There was a spike in financing to payroll companies, such as Paycor, a payroll management SaaS platform that raised $270 million and Payfit, which raised a $107 million Series D, and Papaya Global, which raised $100 million. Some interesting companies in the space to raise were Orka, which allows shift workers to withdraw pay as their shifts end, focused on entertainment industry payroll, and Minu, which provides real-time earned wage access in Mexico.

As we get late into a credit and market cycle, homebuying is spiking in popularity. Accordingly, 15 mortgage and homebuying-focused startups raised  $468 million, including Divvy Homes ($110 million), SimpleNexus ($108), Valon ($50), Roostify ($32), UpEquity ($25), EarnUp ($25), and Neat Capital ($23).

A new class of business PFM also emerged. These companies offer a hybrid of accounting tools, financial planning, cash management, and savings tools for business owners. The category includes startups like Monite, Zeni, Zibo, and Jedox.