Frankfurt German fintechs continued to have difficulties raising fresh capital in the second quarter. In 13 rounds of financing, companies raised a total of around 143 million euros in venture capital – and thus significantly less than in the same quarters of the previous year. This is the result of figures from Barkow Consulting. In the second quarter of 2021, German fintechs were able to collect 1.78 billion euros in 48 financing rounds, in 2022 it was 1.44 billion euros in 33 rounds.
“Unfortunately, the supposed slight recovery from the beginning of the year did not continue,” said Peter Barkow, head of Barkow Consulting. The second quarter showed the second weakest values since 2015 in terms of both the number of transactions and the funding volume. The financing volume in the second quarter of 2023 is significantly below the level of previous years, observes Max Flötotto, who heads McKinsey’s banking consultancy in Germany and Austria.
The short recovery phase from the first quarter, in which there was significantly more activity than in the fourth quarter of last year, has therefore suffered a slight dampener. The macro environment is apparently still increasingly unsettling investors: the Ukraine war, high inflation and the turnaround in interest rates are making venture capitalists more cautious.
That is why there was no “mega round” with a financing volume of more than 100 million euros in the second quarter either. Instead, smaller financing rounds were announced again. For example, the Berlin fintech Payrails, which offers an operating system for international payment transactions in e-commerce companies, was able to collect 14 million euros in June. The company’s investors include well-known US investor Andreessen Horowitz.
The Berlin fintech Nelly also received 15 million euros in June. With an electronic signature, the company wants to simplify the registration and payment process in medical practices. And the Frankfurt fintech financial guru received 13 million euros in fresh capital in April. Finanzguru customers can link their bank accounts to the multibanking provider’s app. The fintech can then provide an accurate overview of the customers’ income and expenses as well as their contracts.
Customer growth has slowed
Overall, German fintechs raised around 382 million euros in venture capital in 35 financing rounds in the first half of this year – and also significantly less than in previous years.
For comparison: In 2020, the companies were able to collect almost 600 million euros in 68 financing rounds, in 2021 it was 2.8 billion euros in 94 rounds and in 2022 in 56 rounds 1.9 billion euros. Even in the second half of last year, which was considered to be so weak, there were still 640 million euros in 25 financing rounds.
“B2C fintechs (business-to-consumer) in particular often continue to struggle, customer growth has slowed down,” said Flötotto. These companies address end customers directly and need as many of them as possible in order to achieve positive economies of scale.
Nevertheless, experts are optimistic. “We are seeing significantly more activity among investors, even if this is not yet reflected in the numbers. The mood is significantly more positive than in the first quarter,” said Simon Schmincke, partner at the early-stage financier Creandum. Flötotto also sees no further deterioration in the financing environment compared to the first quarter of this year.
No wave of bankruptcies, more consolidation
This is also important for the industry. So far, fintechs have tried to extend the time until the next round of financing due to the current lower valuations.
“In the past 18 months, many fintechs have closed internal financing rounds with existing investors,” said Schmincke. But the money is not enough for many companies for much longer. He expects that a large number of fintechs will come onto the market in the next twelve months and have to raise new capital.
But the investor does not fear a wave of bankruptcies. “I think that the wave of bankruptcies will be smaller than many feared,” said Schmincke. Most would have restructured their companies and saved costs. They are now much leaner and should find it easier to get money. “Provided, of course, that they also accept a devaluation,” says the Creandum partner.
Another way out is mergers. The consolidation wave had actually already been predicted for the past year, but with two exceptions it did not materialize. Only the Berlin fintech Penta was sold to the French competitor Qonto in July, as was the Berlin fintech Kontist to the Danish Ageras Group. “I expect more activity in the coming months,” said Flötotto.
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