MD Finance report shows fintech companies with the highest chances of funding
Amidst a backdrop of global challenges – ranging from high interest rates, inflation, and regional conflicts – fintech investors have grown more cautious. However, a new report by MD Finance shows that interest in quality companies with robust metrics is still alive and well.
Global fintech is expected to rise going forward – why?
After a few difficult years for fintech funding, analytics see the signs of growth in 2024.
Indeed, with global fintech funding nosedived to $39.2 billion in 2023 according to the CB Insights’ State of Fintech Report.
But the first quarter of 2024 saw a rebound with almost 500 fintech deals, so says Royal Park Partners, a corporate finance advisory firm for fintechs.
For companies with the right qualities to attract investors, demand is alive and well. Businesses that can demonstrate strong growth metrics with a clear understanding of their cost base as well as the likely challenges in their sector, stand well positioned to take advantage of investment opportunities.
The Royal Park Partners research found that despite the demise of a number of underfunded fintech start-ups, the sector is generally in rude health, demonstrating continued resilience and expansion in the first months of the year.
More than that though, the fintech sector has matured. They have emerged from an initial fast growth stage to become proven and reliable contenders – entering a new era of value creation with a focus on sustainable, profitable growth.
Recent funding rounds in the fintech sector confirm this. They show high demand from private equity confirmed, especially for companies with high valuations of EV/revenue multiples averaging to over 30.
This new market backdrop demands a fresh approach to funding.
MD Finance analysis of recent fintech funding rounds shows that investors are avoiding risk, focusing on profitability and avoiding down rounds where private companies offer investors additional shares but at a lower price than they had been sold for in previous financing rounds.
For founders and CEOs, then, the challenge is to maximise value from operational activities, ensure long-term sustainability, and make sure they are attractive to investors that fund continued scale and growth.
“Based on these overarching trends we have compiled a list of fintech public companies that fit the bill; aligning investors’ needs. Our findings indicate that future funding rounds will be focused on the embedded finance sector, particularly in payments and lending. There’s a growing interest in AI too. It is attracting significant attention from investors,” said Anton Moshkalov, CFO at MD Finance.
Which companies are most attractive?
Our insights team investigated over 200 public companies in the fintech sector to find the most interesting in terms of growth and appeal to investors.
To be eligible and described as “interesting”, a company should have EV/revenue higher than six and be EBITDA profitable. The EV/EBITDA for the selection going higher than 34+ on median. All players are EBITDA profitable.
The company’s size of our companies was not to restrict high valuations compared to others.
We then compiled a list of 18 most interesting.
What do these successful companies have in common?
Sector: Our list shows that the most companies are credit services-related. This is supported by data from KPMG which found that the payments space continued to account for the largest share of fintech funding among the various fintech sub-sectors – this was despite a drop in investment from $57.9 billion to $20.7 billion between 2022 and 2023.
Indeed, of the major fintech sub-sectors, the only sectors to see a rise in investment, year-on-year, were proptech and insurtech. Proptech investment rose from $4.1 billion to $13.4 billion, and insurtech investment grew from $5.9 billion to $8.1 billion.
AI remained attractive too. It attracted over $12.1 billion in fintech investment during the same period.
Examples we found to fit the model of sustainable growth and that are within the credit services markets include Payoneer. This US-based firm provides online money transfer, digital payment services, and working capital. Keybank, meanwhile, is also US-based and operates in two segments, consumer and commercial banking, providing various retail and commercial banking products and services.
Another example is In South Korea; KakaoBank is a mobile-only bank and financial technology company. Established in 2016, it lends to individuals and businesses, offers broking services, and issues credit cards.
Finally, Orico in Japan partners with financial institutions to provide personal loans, and JACCS is a Japanese financial services company that specialises in credit sales.
Geography: our geographical split of companies attracting investment, meanwhile, showed that ten of our most interesting companies are located in the US. Five companies are in South East Asia, the remaining three are in India, Brazil, and Kazakhstan.
CB Insights says that US-based fintechs were the quarter’s top recipients of this funding, having cut a $3.3 billion slice of the pie across a total of 393 deals.
This concurs with KPMG’s research which shows that the US attracted two-thirds of all fintech funding during 2023 ($73.5 billion). They were followed not so closely by the European fintech community, which bagged $2.2 billion across 203 deals, while Asia took third place with $1 billion sealed in 210 deals.
This regional analysis shows that the rest of the world, such as Latin America, Africa, Oceania, Canada and some other smaller regions, has only received 12% of the total amount funded into fintech this year, with just under $700 million raised.
Into the rest of 2024, investment in the fintech sector globally is expected to remain relatively soft, although investment will likely begin to pick up as interest rates reduce with common consensus that this will be in Q3/Q4. AI will likely continue to be a key focus, B2B solutions, M&A activity is also expected to rise as investors look for opportunities to buy distressed assets.
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