State of European Fintech 2022
Welcome to Finch Capitals 7th edition
The “State of European FinTech” report in which we take a closer look at Europe’s FinTech sector. Focusing in particular on 4 core metrics that provide an analysis of the sector and a forecast for trends that will
likely emerge including: (1) State of Founders (2) State of Funding (3) State of Talent, and (4) State of Exits.
These topics are good proxies for the overall health of European FinTech which, after a long-period of stratospheric growth, is
now entering a period of cooling and consolidation in the face of macroeconomic headwinds.
Finch Capital is a European Thematic Growth Investor. We currently focus on 3 themes: Financial, Real Estate and Health
technology. We back companies generating €2m+ in ARR by investing €5 to €10m initially and help them scale to €30m€50m revenues by building sustainable and capital efficient business models. We’ve invested in ±45 companies including
Fourthline, Goodlord, Grab, Hiber, Twisto, AccountsIQ, ZOPA and Symmetrical.
Finch Capital consists of a team of 12 investment professionals with wide entrepreneurial experience (e.g. Funding Circle ,
Adyen), prior investment experience (e.g. Accel, Egeria) and industry backgrounds (e.g., Facebook, McKinsey), located across
offices in Amsterdam and London. For more information see www.finchcapital.com and subscribe to our newsletter.
Aman Ghei
Partner
Aman@finchcapital.com
Lourens Ruigrok
Principal
Lourens@finchcapital.com
Radboud Vlaar
Managing Partner
Radboud@finchcapital.com
Eugénie Colonna d’lstria
Analyst
Eugenie@finchcapital.com
Executive summary
After 10 years of entrepreneurial growth, the European FinTech ecosystem is transitioning to a new normal
in terms of funding, valuation and ecosystem players driven by the following factors:
●
●
●
●
●
New FinTechs founded has plateaued since 2018 and dropped 80% since 2021;
European FinTech Demand funding on a path to decline 50% due to less mega rounds and the end of
the payments, lending and crypto funding boom, with new high growth sub-sectors still nascent;
Available European Capital at all time high but consolidating with corporate VCs doing 50% less deals
and institutional VCs raising less frequently;
Public exits have declined by 74%, M&A also on decline except for deals below €200m;
Overheated labor market starting to normalise with hiring slowing down and some sectors starting to
net lay-off people. Overall, the US FinTech sector has been firing more people than the European
FinTechs.
With dry powder to fund European start-ups at an all-time high the transition to normal levels looks to be
more smooth versus earlier slow downs with the main challenge expected for:
● High revenue multiple valued high burn FinTechs that are under pressure to fund or exit in a market
where comparable public FinTechs have 60-80% lower revenue multiples versus last round
● Megafunds (EUR 750m+) that need to deploy in a market with funding overcapacity and few large
rounds, where doing large secondary transactions in a few winners could be a way out
The European FinTech ecosystem started to stagnate over the last 12 months
New FinTechs Founded
“Former founders/employees of the
top tech companies
in Europe and 250 funding rounds in
2021, raising
almost $9bn”
Slide 7
“New FinTechs have been plateauing
since 2018
and a sharp decline since 2021
combined with consolidating FinTech
landscape”
Slide 6
-85%
FinTech Exits
Funding Supply & Demand to FinTechs to scale
New European FinTechs based on Pitchbook data
Dry powder European
Fintech investors ($bn)
Deal count
-70%
IPO Volume, Deallogic
“IPOs have declined with 74% and
M&A with 43% comparing Q1-3 2021
vs 2022, SPACS expected to return
75Bn
to investors”
Slide 23
-25%
Hiring by FinTechs to scale
-40%
Annual growth rate, % LinkedIn
2x
European Fintech deals, Pitchbook
European Fintech investors $bn
“Funding volume and number
of deals slow down, despite
record dry powder levels “
Slide 10
“Hiring slow down with
some sectors starting to fire “
Slide 20
1. State of Founders
New business formation in the FinTech
sector peaked in 2018 but, over the last
year, has declined 80%.
Steep decline in new founded FinTechs since 2020…
Number of Fintechs founded per year
+33%
-5%
-80%
Source: Finch Capital Analyses, Pitchbook
Europe’s best FinTechs inspired many new FinTech founders
GoCardless
Combined funding $2.3B
Adyen
Combined funding $76M
Former founders/early employees of the top tech
companies in Europe accounted for 250 funding rounds in
2021, raising almost $9bn. When liquidity window closes,
the number of new ‘founders’ will come down
Source: Finch Capital Analyses,Dealroom: Europe’s startup founder factories
Wise (formerly TransferWise)
Combined funding $161m
Klarna
Combined funding $170m
Consolidation is expected to create fewer but stronger FinTechs
Over a 100k startups founded in Europe over the last decade
Denmark
Examples of Fragmentation in Financial
Technology (Europe)
3k
Netherlands
7k
Sweden
Belgium
Ireland
4k
3k
UK
3k
Germany
23k
12k
France
Switzerland
3k
14k
Italy
6k
Spain
8k
Source: Finch Capital Analyses, Dealroom
# of tech startups founded by country over the last decade
KYC – ±250 companies
PFM – 100+ companies
Open Banking/PSD2 – 244 companies
Factoring – 106 companies
Expense Management software – 300+
companies
● PSPs – 500+ companies
●
●
●
●
●
2. State of Funding
The European FinTech sector saw significant growth with
603 deals in 2021. Over the same period, FinTech
investment globally topped US$210 billion… but the forecast
is not quite so positive.
After peaking in Q1, 22 funding rounds are expected to decrease by 50%
Historical number of deals in US VC
ecosystem post-2000
The number of deals in European
FinTechs is slowing down
Absolute US VC Investments by Stage
– 60%
– 70%
VC funding shows signs of a New Tech Bubble as the
funding slows down across European Fintechs
Source: Pitchbook, Tomasz Tunguz blog
Public markets have normalised back to 2019 levels after a steep rise
since 2020, private markets now starting to follow
Public market multiples back to 2019 levels
after strong rise since 2020**
Public EV/NTM revenue multiples
– 60%
Late stage private market valuations have seen a similar steep rise of 200-300%
in valuations since 2019, but are expected to drop to pre-2019 valuation levels
Late-stage pre-money valuation ($M)
300%
200%
*
Strong rise since 2020
Ark Innovation Fund
Overall, we saw impressive activity with top decile valuations going 7x in the last
10 years. Following the public market valuation decline, the private market is
slowly catching up, starting with the US.
* Year to date
** Based on ARK innovation Fund index
Source: Pitchbook
With valuations coming down, the result is smaller round sizes:
total deal volume is expected to halve in the next 12 to 18 months
Fintech funding volumes are
driven by mega deals
Normalised level
€7-10Bn
* Data is annualized based on estimate
Source: Pitchbook
Total deal volume is declining
longer term due to less deals at
earlier stages and short term
due to a drop in mega rounds
Without a new wave to replace the funding hype of Payments,
Lending and Crypto, funding demand is expected to drop by 50%
Strong drivers of historical FinTech boom are coming
to an end, with no new signs what will replace them
Lending, Payments
and Crypto funding
boom seems to
stagnate
* Year to date
Source: Finch Capital Team analyses, Pitchbook
More downrounds expected to reflect new normal valuation,
resulting in smaller rounds especially for high-burn unicorns
Down round deal count as a share of all VC deals
The correction is now coming also to private
valuations. Klarna’s valuation is down 86% and
Stripe cut its valuation internally by 28%
Significant increase
expected in 2022
The current low amount of down rounds is not the norm. The
lack of financial performance versus growing multiples on
forward projections will push valuations down.
Source: Pitchbook, Dealroom
Private tech companies’ valuation picked in 2021. Klarna and
Stripe’s correction is the proof of the normalization of the
market in a similar fashion to the post-2000 Tech Bubble era.
Like in past cycles, Corporate VC Funding declines rapidly,
except for Crypto Firms
CVC participation in European Fintechs is
highly sensitive to market conditions
VC hype
wave
Covid
outbreak
* Year to date
Source: Pitchbook
Economic
slowdown
YTD YoY %
avg 20/21
2022*
5
17
+240%
6.5
4
-38%
10.5
2
-81%
5
2
-60%
2
1
-50%
4
4
0%
4
3
-25%
1.5
2
+33%
2.5
0
-100%
1.5
1
-33%
Declining funding needed by startups creates a strategic dilemma given
record dry powder ready to invest by European VC
Fundraising slowed down for European VC
Dry powder is building up for European Fintech investors**
As we expect the amount of deals and funding volumes to decline, the legacy dry
powder build up might prove to be a challenge to deploy for VC investors
* Year to date
** European VC investors with at least 5 investments and over 50% investments in the Fintech space
Source: Pitchbook
3. State of Talent
Europe accounts for only 10% of total reported fintech
layoffs globally, despite receiving 25% of global FinTech
funding.
The retreat in aggressive hiring is visible across all sectors with
challenger banks bucking the trend
FTE employee growth rates
Source: LinkedIn employee data
Europe has been better off than the US in terms of layoffs
TOP 20 COMPANIES IN TERMS OF LAYOFFS
20,000+ reported fintech layoffs globally
Europe accounts for only 10% of total
reported fintech layoffs…
European
companies
…despite receiving 25% of global
fintech funding
Stockholm, London and Berlin
are most affected cities
Source: https://layoffs.fyi
Overall, companies are still hiring as normalisation nears in
2023, due to over heated labour market with many vacancies
High attrition
Source: LinkedIn employee data
Companies invest more in sales than engineering, however some
sectors such as Mortgages and wealth start to reduce headcount
Weighted average growth in sales has fallen
less than engineering: companies growing
sales teams 65% less compared with 80%
less for engineering
Source: LinkedIn employee data
4. State of Exits
50% drop in IPO and large venture M&A as exit windows dry
up, however significant amount of smaller M&A continues
Based on previous cycles, Exit market need ±2 years to recover
IPOs 2005 – 2022
Global IPO volume has slowed down dramatically
M&A deals 2005 – 2022
Global M&A number of deals coming down, showing first
signs of downward trend after stable period
M&A volume
shows similar
trend. # of
deals less
affected
Financial crisis
IPO volume
70% down
Source: Dealogic
-60%
Value of finTech exits rapidly fell due to closing of public markets,
significant amount of smaller M&A continues
Global Fintech Exits Enterprise – by Value
Global number of Fintech Exits – By Count
$ bn
Deals
$500mn+ 8
IPOs
Massive drop, both in number of deals
and volume. After dot com and 2008
took 2-3 years to recover
Source: Pitchbook
4
SPACS
SPAC market evaporated,
predicted to return $75bn to
investors this year
17
24
30
32
32
26
18
8
M&A
Stronger decline in deal volume
than number of deals points trend
towards smaller M&A
9
Given dry powder excess and few exits of >500m companies,
secondary market could enable new Funds to invest and old funds to
exit
Secondaries managers continue to raise large funds and
deploy capital quickly.
The secondaries market is poised for more growth as
funds look for alternate ways to generate liquidity
$63Bn AUM for European Fintechs VCs to
exit in the next 10 years (slide 15)
Source: Jefferies, 1H2022 Global Secondary Market Review
5. Summary
A period of cooling and consolidation across the FinTech
sector, as macroeconomic conditions grow more
challenging. However, an abundance of undeployed
Growth Capital is cause for optimism for Founders and
Talent to make a soft landing.
Executive summary
After 10 years of benign entrepreneurial growth, the European FinTech ecosystem is transitioning to a new
normal in terms of funding, valuation and ecosystem players driven by the following factors:
●
●
●
●
●
New FinTechs founded has been plateauing since 2018 and dropped 80% since 2021;
European FinTech Demand funding on a path to decline 50% due to less mega rounds and the end of
the payments, lending and crypto funding boom, with new high growth sub-sectors still nascent;
European Available Capital invest at all time high but consolidating with corporate VCs doing 50% less
deals and institutional VCs raising less frequently;
Public exits have declined by 74%, M&A also on decline except for deals below €200m;
Overheated labor market starting to normalise with hiring slowing down and some sectors starting to
net lay-off people. Overall, the US FinTech sector has been firing more people than the European
FinTechs.
With dry powder to fund European start-ups at an all-time high the transition to normal levels looks to be
more smooth versus earlier slow downs with the main challenge expected for:
● High revenue multiple valued high burn FinTechs that are under pressure to fund or exit in a market
where comparable public FinTechs have 60-80% lower revenue multiples versus last round
● Megafunds (EUR 750m+) that need to deploy in a market with funding overcapacity and few large
rounds, where doing large secondary transactions in a few winners could be a way out
The European FinTech ecosystem started to stagnate in the last 12 months
New FinTechs Created
-85%
FinTech Exits
New European FinTechs based on Pitchbook data
Funding Supply & Demand to FinTechs to scale
Deal count
Dry powder
-25%
-70%
2x
IPO Volume, Deallogic
Hiring by FinTechs to scale
-40%
Annual growth rate, % LinkedIn
European Fintech deals, Pitchbook
European Fintech investors $bn
The European FinTech ecosystem started to stagnate in the last 12 months
New FinTechs Founded
“Former founders/employees of the
top tech companies
in Europe and 250 funding rounds in
2021, raising
almost $9bn”
Slide 7
-85%
FinTech Exits
Funding Supply & Demand to FinTechs to scale
New European FinTechs based on Pitchbook data
Deal count
-25%
-70%
“IPOs have declined with 74% and
M&A with 43% comparing Q1-3 2021
vs 2022, SPACS expected to return
75Bn
to investors”
Slide 23
“New FinTechs have been plateauing
since 2018
and a sharp decline since 2021
combined with consolidating FinTech
landscape”
Slide 6
IPO Volume, Deallogic
Hiring by FinTechs to scale
European Fintech deals, Pitchbook
2x
European Fintech investors $bn
“Funding volume and number
of deals slow down, despite
record dry powder levels “
Slide 10
-40%
Annual growth rate, % LinkedIn
Dry powder European
Fintech investors ($bn)
“Hiring slow down with
some sectors starting to fire “
