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Years of hype that led to high valuations, concerns over high
loan losses among online lenders and industry scandals such as
Lending Club Corp falsifying loan documentation [L3N1863QM], has
resulted in a slowdown for the U.S. fintech market, say
investors. Meanwhile, younger markets with a less complex
regulatory regime and fewer failed startups to deter investors
are attracting more dollars.
"Europe didn't experience the euphoric run-up and also didn't
get the whiplash when things turned tough," said Charles Moldow,
a fintech investor and general partner at Foundation Capital.
Fintech is a diverse industry that includes startups using new
technology to facilitate online lending, payments, money
transfers, insurance and stock trading. In recent years, it has
attracted investor attention for its potential to upend
traditional financial systems.
In the first quarter this year, venture-backed fintech companies
in the U.S. raised $1.1 billion, an 8 percent drop from the
previous quarter and down 39 percent from the same period a year
ago, according to a new report from venture capital database CB
Insights.
U.S. fintech startups closed a total of 90 financing deals, down
9 percent from the previous quarter, and the median deal size in
dollars also fell.
Meanwhile, investments during the first quarter in European
venture-backed fintech companies jumped to $667 million, a 250
percent increase over the previous quarter and 133 percent climb
from a year ago.
The number of fintech deals in Europe spiked 74 percent from the
previous quarter to 73, and the average deal size ticked up.
A confluence of trends - including the rise of digital banks,
regulations that encourage startups to experiment with new
financial products and the popularity of online payments - has
positioned Europe for a fintech boom, said Matthew Wong, senior
analyst for CB Insights.
The fintech pullback in the United States is also part of a
broader startup investment slowdown, as venture capitalists rein
in spending following a frenzy in 2014 and 2015 that drove up
valuations.
Still, for the hottest U.S. companies, there was no problem
raising cash. SoFi, which offers various loan and refinancing
plans, raised $500 million at a $4.5 billion valuation.
"Outside of that, we didn't see as much enthusiasm for
larger-scale financing in the U.S.," Wong said.
(Reporting by Heather Somerville; Editing by Richard Pullin)
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