Fintech investment is slowing down in a big way

According to KPMG, after a record-breaking 2021, the pendulum is swinging in the other direction for financial disruptors.

Fintech investment in Canada is slumping, according to the latest KPMG research.

After experiencing a record-breaking year in 2021, total fintech investment dropped by more than 50% in the first six months of 2022. There was $810 million USD in total investment across 85 deals (including venture capital, mergers and acquisitions and private equity) in the first half of 2022, down from $1.9 billion USD in the second half of 2021.

According to KPMG’s Pulse of Fintech report, it was also a sizeable drop compared with the first half of 2021, which saw $5.4 billion USD in investment across 108 deals.

Geoff Rush, national industry leader for financial services at KPMG in Canada, says this reflects investors hitting the “pause button” in the midst of a market downturn and lower tech valuations. Rush refers to it as a re-balancing of expectations, or a sector reset.

“We expect fintech to continue to draw interest in the second half of the year, but investors will be more selective about where they deploy capital,” he says.

The bulk of investment in the first half of 2022 came from venture capital: 25 were seed round investments, 23 were early-stage and 17 were later-stage funding rounds. And more than one-third of all fintech deals happened in the cryptoasset space.

This impact, coupled with other economic struggles and a looming recession, has meant several Canadian fintech firms have been among those in the broader tech sector facing big layoffs. In June, Wealthsimple laid off 13% of its staff, citing “market volatility.” Clearco laid off 125 of its 500-person staff in late July. That same month, Coinsquare laid off 24% of its workforce, due to ongoing instability in the crypto market.

The downturn in Canadian fintech investment mirrors what is happening globally, where sector investment dropped from $111.2 billion USD across 3,372 deals in the second half of 2021 to $107.8 billion USD across 2,980 deals in the first half of this year.

KPMG’s report also notes that that market turmoil brought IPO activity to nearly a standstill: in Canada, there were no IPOs in the first six months of the year, a trend the firm expects to continue into the second half of the year.

Continued downward pressure on tech valuations could result in more merger and acquisition and private equity activity, as investors and corporates look for deals, the report notes.