We’re three quarters of the way through a rollercoaster year for European fintech.
Though the year started with a bang, funding has slumped recently. Overall investment halved from $6.3bn across 348 funding rounds in the second quarter to $2.8bn across 192 rounds — the smallest total since Q4 2020.
That said, the third quarter’s two biggest fintech rounds in the world were raised by European companies: German insurtech Wefox and Italian payments provider Satispay. Both snagged big-name US investors of the likes of Target Global, Coatue and Addition for their hefty late-stage rounds.
So what does the data tell us about which fintech sectors will weather the economic storm?
Wefox and Satispay stand out from the crowd
As with the previous two quarters, the continent’s overall investment figures were pushed up by some large later-stage rounds from companies that might have been IPO-ing if public markets hadn’t taken a turn.
Berlin-based insurtech Wefox raised one of the biggest rounds of the year with its $400m Series D in July, led by UAE-based Getir backers Mubadala Capital, and a roster of other big VC names including Horizon, Target Global, Eurazeo and Omers Ventures.
Just before the quarter’s close, Milan-based Satispay raised the second-largest round with its €320m Series D, making it Italy’s second unicorn in a big moment for the country’s tech scene. The round also placed it in the top 10 largest of the year, and ahead of the $213m Series B raised by its Italian unicorn predecessor Scalapay in February.
Crypto companies took up the lion’s share of the quarter’s largest rounds, and $100m seemed to be VCs’ magic number. Blockchain protocol RubiX Network, digital wallet Safe (previously Gnosis Safe) and blockchain network 5ire all raised $100m from mostly crypto-focused funds, while blockchain startup Fuel Labs raised $80m.
Insurtech overtakes payments
It may be one of the least sexy corners of B2C fintech, but investors were all over insurtech in Q3, knocking payments off the top spot in terms of overall investment.
Overall, $679m poured into the sector across 28 funding rounds — while payments raked in $547m, but across 39 rounds. Naturally, WeFox’s bumper round had a part to play in this overall total. Other notable rounds included London’s employee insurance app YuLife’s $120m Series C, which snagged investors like Japan’s Daiichi Life, Creandum, Anthemis, Target Global and LocalGlobe, and Munich’s health insurtech Ottonava’s €34m Series F from growth investor Cadence.
Most of the big insurtech rounds of the period went to B2C companies that offer a more focused, “niche” take on insurance rather than a full suite of product — like Ottonava’s health focus or YuLife’s employee wellness product. VCs tell Sifted that going forward, they’re veering towards B2B products — like Berlin’s white label insurance service provider Element, which raised a €21.5m Series B in July.
“Investors are now becoming weary of the the full-stack B2C insurance models that have raised huge rounds in previous years but are now struggling with high acquisition costs,” says Gerald Parloiu, partner at Global Founders Capital. “We’re now seeing more interest in embedded insurance products and B2B insurtechs in general.”
Although payments continues to be a stalwart in the top-funded subsectors list, it’s also seen some of the biggest valuation casualties in the last few months — including Klarna’s 85% drop in July and SumUp falling short of its anticipated valuation by more than 50% in late June.
Investors tell Sifted that they still think it’s a watertight sector with guaranteed potential for growth, but they’re also looking more at behind-the-scenes infrastructure bets.
“Going forward we’re on the lookout for vertical SaaS deals which have the opportunity to move into the payments workflow, and anything to improve friction in the B2B payments workflow,” Lily Shaw, fintech investor at Omers Ventures, tells Sifted.
Crypto investment also remained very hot, totalling $452m across 28 funding rounds, as the VCs and asset managers that have come to realise it’s here to stay took advantage of the crypto winter to shop around for better deals and “get in cheaper”.
And rather unsurprisingly, investors have been betting big on B2B financial management solutions (or CFO tools), that are designed to help companies increase their financial efficiency as the economy cools.
“These tools are more likely to stay funded when belts tighten,” Nahu Ghebremichael, partner at Singular VC, tells Sifted.
“There isn’t an enterprise versus SME delta on these because it’s just as important for every kind of business. In particular, SMEs often don’t have good resources to deal with nuanced finances but they can’t float over it like they can in growth times. It’s live or die for some of them when the market is rocky.”
Italy outpaces France
As international investors finally began to cast their eyes on Italian fintech this year, the country broke into the top five countries for investment in the first quarter.
Now, it’s risen up the ranks to take third place behind the UK and Germany — and ahead of France — when it comes to overall investment. Ireland has also had a strong quarter, entering the top five and overtaking Sweden and the Netherlands, thanks to Dublin-based tax automation startup Fonoa’s $60m Series B from investors including Index and Coatue.
But while VCs tell Sifted they’re beginning to scout out more deals in these countries, they’re also hesitant to call these changes a trend — as total investment amounts have been bumped up by a few larger individual rounds.
Although Italian fintech attracted $389m in the quarter, $315m of that was courtesy of Satispay’s Series D. The country clocked 10 funding rounds in the period, while France clocked 18, Germany 23, and the UK 58. So while Satispay, Casavo and Scalapay’s hefty rounds are certainly encouraging signs that the country’s fintech scene needs, the data tells us there’s still some way to go before it catches up with more mature neighbouring fintech scenes.
“My hypothesis would be that savvy investors are looking in “untapped” areas more earnestly right now because the market hasn’t developed enough to see an uptick in pricing,” Ghebremichael says.
All eyes on Q4
Across the board, investors tell Sifted that they’re looking at B2B bets for each fintech subsector — where revenue is a safer guarantee as consumers struggle with the soaring cost of living.
“These businesses are mission critical (regtech, data infrastructure, financial rails, risk analytics) and tend to be resilient in recessionary environments,” Jay Wilson, investment director at Albion VC, tells Sifted.
“But a key challenge across the fintech universe (even in B2B) is differentiation, as most market spaces are oversupplied with vendors.”
And we’re now reaching an inflection point in Q4 and Q1 when it comes to fintechs’ runway — all eyes will be on whether companies manage to top up on cash, or begin to enter an emergency zone.
“It’s going to be a really interest period because loads of companies raised funding last year for 18-24 months of runway and haven’t yet had to go out and fundraise in this new environment,” Nick Sando, principal at Octopus Ventures, tells Sifted.
“It will be interesting to see how some who may have received very high valuations will get on in the new market dynamics. We’re looking forward to backing a few of the businesses we didn’t get the chance to partner up with in 2021.”
This article uses Dealroom data pulled at the end of the quarter, but there is a slight data lag, which means exact amounts are subject to change.
Amy O’Brien is Sifted’s fintech reporter. She writes Sifted’s fintech newsletter and tweets from @Amy_EOBrien.