Fintech Funding Value Rebounds As Megadeals Spike In Q2

By Philip Rosenstein
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Law360 (August 5, 2020, 9:55 PM EDT) -- While overall deals activity continued to trend lower amid the coronavirus pandemic, the second quarter of 2020 saw fintech funding rebound to $9.3 billion, including a jump in megadeals over $100 million, according to a report published by market intelligence platform CB Insights on Wednesday.

Despite 2020 showing a below average deal value when compared to previous years, June saw an uptick in the number of fintech deals and deal value month over month. June saw 141 fintech deals globally, according to the report, and a total deal value of $3.44 billion.

Overall, the second quarter of 2020 saw a 17% increase in fintech deal value, up to $9.3 billion from $7.9 billion in the first quarter of the year. Nonetheless, total deal numbers decreased from 452 in Q1 to 397 in Q2. Significantly, the CB Insights report found that the second quarter of 2020 saw the fintech industry reach a new high for "mega-rounds" over $100 million, with 28 such deals.

"The common narrative has been that COVID dampened investor activity across the board, including fintech," CB Insights intelligence analyst Alex Kern told Law360 in an email. "This is true to an extent, but deal activity in the space had been declining prior to COVID. Most of this decline has come from a pullback in funding for seed/angel rounds, which have fallen every quarter since reaching 200 in Q3 '19. There were 90 seed/angel rounds to VC-backed companies in Q2 '20."

The report predicts that total 2020 fintech funding value and number of deals will fall to pre-2018 levels. The second quarter of 2020 saw an especially precipitous decline in seed and angel investments, with such deals hitting the lowest mark over the past three years.

Kern noted, however, that the rebound since an April trough points to a pickup in deal activity in the second half of the year, with an expected focus on more established fintech companies.

Also highlighted by the report is the number of S-1 filings made by fintech companies as they prepare to go public. The increase in "mega-round" and S-1 filings point to "an increasingly mature industry where investors are leaning into the larger, established fintech companies," Kern said.

"Going forward we expect this trend to continue," Kern said.

Notable S-1 filings include fintech insurance company Lemonade, which began trading in July on the New York Stock Exchange, cloud banking company nCino and Rocket Companies, the holding company of Rocket Mortgage. Further, fintech-focused blank check company Fusion Acquisition raised $305 million.

The largest fintech funding rounds in the second quarter of 2020 brought in $600 million for payments processing software company Stripe, valuing the company at a whopping $36 billion, and $600 million for popular trading application Robinhood, with an $8.6 billion valuation. The third largest funding round of the quarter saw Brazilian fintech Nubank rake in $300 million for a $10 billion valuation.

Among the most active venture capital companies in fintech over the past year are Sequoia, 500 Startups, Ribbit Capital and Accel.

The report further pointed to a striking growth in e-commerce penetration, with the percent of retail sales made through e-commerce increasing to 27% in 2020, compared to 16% in 2019. The trend since 2009 has been steadily positive, as e-commerce continues to encroach on traditional brick-and-mortar retail sales.

--Editing by Alanna Weissman.

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