Fintech startups have raised $3.4 billion in funding as of July 2022 with 191 recorded deals, a report by fintech-focused angel platform Connexdoor has said.
According to the report, titled “The State of Fintech Funding in India,” funding to fintech startups over the last six months has tapered lower. A comparative study between 2021 and 2022 shows that while 2022 has seen a 28% uptick in number of deals so far, the increase in cumulative funding amount, at 2.7%, has been marginal.
Out of the total amount raised, 26.7% went into lending tech, 14.6% to enterprise tech, 9.95% to payments tech, 6.81% to insurtech, 21.9% to wealth tech, 7.8% to neobanks, 8.3% to emerging tech, 3.1% to financial inclusion, and 0.52% in marketplaces.
Some of the larger deals include CredAvenue, Pine Labs, Ozyzo who have raised over $100 million in the first quarter of 2021.
In 2021, 149 fintech deals were recorded where companies raised $3.34 billion, whereas 191 deals were recorded in 2022 up to July’22, raising $3.43 billion. Out of the total deals, 96 deals (50%) were in the early-stage segment.
Geographically, Bengaluru took the lead on total deals with 84 deals, followed by Delhi NCR with 35 deals and Mumbai with 34 deals respectively.
The slowdown in fintech funding has been primarily attributed to global macroeconomic conditions.
“One of the important aspects that emerge out of these trends, it is easy for fintech to build the supply side with respective financial institutions but difficult to build a sustainable demand side of the business (repeat customer base), In this context, venture investors find it challenging to invest in businesses if there are too many clones without any specific differentiator, moat, or the founding team's execution ability,” said Sagrika Shah, co-founder, Connexdoor.
The report said startups saw an influx of abundant capital due to excess capital flowing into riskier asset classes and central banks’ induced liquidity. As the central banks started unwinding by increasing interest rates, money started flocking back to relatively safer asset classes.
Overall debt transactions saw a significant drop from 44 in 2021 to only 14 up to July 2022, primarily due to tightened funding and uncertainty over prospects. VCs were seen making a safe play as the majority of the funds deployed were in proven models of lending and payment tech companies.
Interestingly, investors are opting for co-investing as it witnessed a 33.3% increase year on year in 2022. Last year 14 co-investors were seen in the Pre-Series A round of $4 million. Deals with two investors saw a spike of 64%, and co-investing activity in the early- stage gained momentum by 150%, with four to six investors participating in a single deal.