Signals 3.1 (Q3 2020)

Hi Fintech Friends,

This is the Q3 edition of Signals.

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We tracked fintech fundraises by 186 companies across 37 different verticals in Q3. Here’s how the numbers stack up against prior periods:

Sources: 2019, 2018

Even with a negative CAGR compared to previous years, investing into fintech at all stages appears to be rebounding healthily from any slowdown caused by the pandemic.

Of named rounds, there were 29 seed rounds (with 2 seed extensions), 21 Series As (with 1 A extension), 20 Series Bs, and 15 Series Cs, pointing to healthy growth of new fintech concepts (and a likely expansion of interest among earlier-stage fintech investors). Later rounds dropped off, with 1 Series D (and 2 D extensions), 1 Series E, 3 Series Fs, and 1 Series G (Robinhood, with a G extension).

Neobanks commanded the highest share of funding at $1.6 billion, displacing Payments, and Lending saw surprising growth in fundraising, taking the #2 position with $1.4 billion raised. Investing and Payments platforms were the two other categories to raise 10 figures in Q3, with $1.2 billion and $1 billion raised respectively (most of the investing app volume comprised of Robinhood’s Series F and G).

The full data on Q3 fintech fundraises are available here.

So what changed in Q3? If we decompose the lending data, which made a surprise jump to number 2 overall, there are 2 clear outliers: Klarna’s $650 million round and Affirm’s $500 million Series G. However, they were not alone: 20 lending startups overall raised in Q3, including many international startups such as Nemuru (Spain), Lupiya (Zambia), Splitit (US, Australia, UK), or Incomlend (Singapore).

There was also a specific explosion in financing for buy-now-pay-later startups, the installment lenders that convert big-ticket purchases into monthly installments for consumers. It’s not surprising, after the success of market leaders such as Affirm, Klarna, and AfterPay - but it will be interesting to watch how the space grows. BNPL lenders who raised in Q3:

In addition, two point of sale solutions (the natural launchpad for BNPL) raised in Q3: GoTab ($6 million round) and Makeba ($200,000 round). It will be interesting to see how credit quality matures over time from these lenders. Installment loans for purchases are generally non-recourse, meaning they are one of the first debts to go in economic stress conditions. Given the slowdown in economic and consumer activity following the pandemic, it’s surprising to see lenders doing so well, though Klarna did report 7x growth in losses in H1 2020.

It is also interesting to see that all BNPL activity is currently geared towards consumer purchases; just as we saw in banking and credit cards, I wouldn’t be surprised to see new companies raise capital to convert business purchases (supply chain, vendor payments, FF&E, etc.) into installments.

Q3 also brought with it a new type of fintech category: farming fintech. Growers Edge raised $40 million for a platform to help farmers in the US build crop plans, risk-manage their farms, and secure cash-flow loans for operations. Tarfin raised $5 million for a Turkish equivalent.

International deals in particular are continuing to make up a sizable portion of fintech financing. 17% of deals (#) were non-dollar denominated, and many of the largest rounds went to non-US fintechs. Of the 15 companies with the most raised in Q3, 9 (!) were based outside of the US: Klarna (Sweden), Nubank (Brazil), Neon Pagamentos (Brazil), Transferwise (UK), dLocal (Argentina), Grab (Singapore/Indonesia), Viva Republica (South Korea), Auxmoney (Germany), and Warren (Brazil).