Total funding for U.S. fintech companies and deal activity dropped significantly in 2016, down to $12.8 billion from $27 billion in 2015, a result of political and regulatory uncertainty, a decline in megadeals and investor caution, according to KPMG’s Q4 2016 The Pulse of Fintech report.
Despite the drop in total funding for U.S. fintech, 2016 was the third strongest year for fintech investment and second highest year for Venture Capital (VC) fintech investment.
On a global basis, total fintech funding declined by almost 50 percent, falling to $25 billion in 2016 from $47 billion in 2015.
Activity in the U.S.--including M&A and VC investments –totaled 489 deals in 2016, down from 615 deals in 2015. Total VC investment in the U.S. dropped to $4.6 billion in 2016 from $6 billion in 2015, while M&A activity fell to just $8 billion in 2016, down from $21 billion in 2015.
On a positive note, the median deal size increased year-over-year for both seed rounds and early-stage VC deals. In addition, massive late-stage fintech financings contributed to keep total deal value healthy.
“2017 is likely to be a pivotal year for fintech in the U.S. and around the world,” said Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and National Co-Lead partner, KPMG Venture Capital Practice. “Because valuations have corrected, the market has set up a perfect storm for IPOs and M&A to happen in 2017. An increasing number of exits will likely stimulate demand for new investments thanks to the dry powder already in the market.”
Key Trends:
- Interest in Insurtech rose significantly in 2016, with the introduction of disruptive technologies for use in financial services, smart contracts, currency exchange, and other functions.
- Investors are watching blockchain closely. During 2016, a number of blockchain projects and proof-of-concept initiatives were conducted, but investors want to see movement in the near future to show that the technology can be used to create effective, scalable and profitable solutions.
- Robo-advisory has been a strong area of fintech investment over the past few quarters. While robo-advisory has primarily been envisioned as a way to reach millennials, the technology is now evolving to become more accessible to other clients.
“We have a lot to look forward to this year,” said Anthony Rjeily, KPMG’s U.S. Financial Services Digital leader and Fintech practice co-leader. “Both insurtech and regtech are expected to be hot areas, and interest in AI, cognitive computing and data and analytics technologies is expected to grow.”
Other Key Findings:
- While Private Equity deal count surged ahead to an all-time high, total investment has retreated to its lowest level in 5 years.
- Despite a year-over-year decline in M&A, deal value remained stable when compared to pre 2015 annual results.
- Fintech Corporate VC activity represented 18 percent of all fintech venture financings in the U.S. in 2016, the most active in the past seven years.
KPMG LLP, the audit, tax and advisory firm, is the independent U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s independent member firms have 189,000 professionals, including more than 9,000 partners, in 152 countries.