Fintech
Slowdown in fintech funding in Europe dampens mood at Amsterdam event
By Elizabeth Howcroft
AMSTERDAM (Reuters) – Europe’s fintech sector faces an uncertain future after funding crunches over the past two years scaled back pandemic-era ambitions and lofty valuations, but some are optimistic that rates lower interest rates will stimulate the recovery.
At the fintech conference in Amsterdam this week, the mood among delegates was mixed, although the speakers and organizers on stage were optimistic, particularly about the promise of artificial intelligence.
Damien Dugauquier, co-founder of iPiD, a Singapore-based fintech that offers prepayment validation services, said fundraising has been “considerably more difficult” in Europe than in the United States or Asia, which attributed to Europe’s weaker economic growth.
“I hope things change for Europe,” he told Reuters on the sidelines of the Money20/20 conference, where many of the exhibitors focused on cryptocurrencies or artificial intelligence.
Artificial intelligence was the buzzword at the start of the conference on Tuesday, with talks from some of Europe’s leading tech companies, including Mistral AI. There was an AI chatbot “co-host” being interviewed on stage, which didn’t work properly at first, and a mind-controlled beer pouring robot on display.
Fintech, or financial technology, companies have been struggling to raise the money to fund their operations since 2022 after central banks raised rates to fight inflation, ending the era of free flow of liquidity.
Dugauquier, who recently closed a $5.3 million funding round, said: “It took eight months whereas I imagine two years ago it would have taken three months. So it’s getting better, but we’re certainly not back to where we are.” crazy times.”
For investors looking to gauge the state of the industry, the main areas of concern were companies’ valuations, their path to profitability in a European economy lagging behind the United States, and how they were handling growing regulatory scrutiny of the sector.
“To be honest, I don’t know if we’re at the end of the downturn in the cycle, because interest rates are still high,” said Helene Falchier, partner at fintech-focused venture capital firm Portage Ventures. It has assets under management worth $2.5 billion.
Venture capital funding flowing into fintech in Europe fell sharply last year to $9.2 billion in 2023 from $26 billion in 2022, PitchBook data shows.
There are few signs of fintech fundraising returning to pandemic-era highs, with funding volumes reaching just $4.4 billion in Europe by the end of May, data shows.
Portage Ventures’ Falchier said the company’s founders have learned lessons from the pandemic era and are more realistic about valuations, although deal flow is still affected by external events.
“We’re in an area where when good news comes I think everyone is really excited and wants to get deals done,” Falchier said. But he also said the market is sensitive to bad news and geopolitical issues.
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Some delegates were more optimistic, noting that the Money20/20 event had grown rapidly compared to previous years.
Monica Long, president of US cryptocurrency firm Ripple, said people flying from the US to Amsterdam suggests fintech is doing well and booming in Europe.
“Cryptocurrency start-ups are doing better in Europe than in most places. There are more cryptocurrency banks here in Europe than anywhere else,” he told Reuters in an interview.
While valuations have fallen across fintech sectors globally, executives at the conference said the outlook appears brighter for companies with proven profitability.
Kunal Jhanji, head of Fintech and Payments at Boston Consulting Group in the UK, said in emailed comments that European companies’ valuations were not as “pushed up” as those of Asian and US companies because they had less access to capital, and so they have been “quietly turning the corner into profitability for some time.”
IPO activity and mergers and acquisitions should pick up next year as interest rates fall, he added.
British digital bank Monzo, which reported its first annual profit this week, secured £340 million of new funding in March in a round led by Alphabet, valuing it at £4 billion ($5.11 billion) , an increase from a round in 2021.
“What I know for sure is that there is enough interest in profitable companies… if unit economics are on your side, you will still be able to attract great valuations,” said Ani Sane, co-founder and chief business officer of payments company TerraPay in London.
TerraPay has raised more than $100 million in 2023 in equity and debt financing.
European companies have generally found it difficult to raise funds locally, sending them to the United States where capital markets are deeper, and prompting European governments to try to make it easier for startups to access finance.
Delegates also said expectations that fintech companies would disrupt traditional finance proved wrong.
“I remember when fintech was first described, there was a sense that fintech companies would be very disruptive to major institutions, potentially even capable of taking significant market share,” said Joanne Hannaford, who leads technology strategy at Deutsche Bank’s corporate bank.
“In fact, that didn’t actually materialize.”
($1 = 0.7821 pounds)
(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes and Jane Merriman)