Frankfurt Even in the current market environment, German financial start-ups are attracting the interest of venture capitalists. In the second quarter, venture capital investors invested a total of almost 1.4 billion euros in local fintechs. This emerges from figures from the analysis company Barkow Consulting and Comdirect.
That is almost 20 percent less than in the same quarter of the previous year, when a new record was achieved. But still significantly more than in previous years. In 2020, the investment volume in the second quarter was 455 million euros, in 2019 it was 217 million. In the entire first half of 2022, VC firms invested a total of around 1.86 billion euros in German fintechs, after 2.3 billion in the same half of the previous year and 599 million in 2020.
This development contrasts with the current mood in the financial sector. Because war, inflation and the expectation of rising interest rates are also putting fintechs under pressure.
In the past few months, there have been reports of staff layoffs and changes in strategy in order to become profitable more quickly. Venture capital investments have so far been surprisingly high this year, said Peter Barkow from the analysis company of the same name.
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However, some fintechs can apparently score particularly well in this environment. Companies that are or could become profitable are popular with investors, said Alex von Frankenberg of the semi-public Hightech Gründerfonds (HTGF).
Christian Nagel from the venture capital firm Earlybird counts B2B fintechs among the current beneficiaries. You focus on business customers (business-to-business).
“Although they were not among the clear winners from Corona, they are now benefiting from the changed market environment because they already have a sustainable business model,” said Nagel. According to the venture capitalist, offline trading companies can also grow significantly, as people are increasingly shopping in stores again and prefer to pay with cards rather than cash.
Sumup with largest financing round
In fact, Sumup, a German-British payment service provider, was able to collect the largest sum from investors in the second quarter. Sumup received EUR 590 million at the end of June this year; According to the company, the valuation rose to eight billion euros. However, it is unclear how high the proportion of loans and equity is.
Sumup, founded by several Germans, sells mobile readers for paying with bank and credit cards. The fintech, headquartered in London, is primarily aimed at small retailers, restaurants and cafés.
The Berlin B2B fintech Upvest also raised 42 million dollars (about 40 million euros) in a financing round. Upvest offers companies the brokerage and custody of investment products via a so-called API interface. It thus provides the infrastructure behind other fintechs, which in turn offer end customers the opportunity to invest in ETFs, crypto or equities. B2B fintechs Lemon Markets and Payrails have also raised millions from venture capitalists.
The Berlin neobroker Trade Republic was also able to collect a larger amount at the beginning of June with 250 million euros. As a result, the valuation rose to five billion euros. In April, the largest German tax start-up, Taxfix, received 220 million euros in fresh capital.
Nevertheless, given the current market environment, investors are more selective, said Nagel. Von Frankenberg also confirms: “The wheat is separated from the chaff: Investors are currently examining the business models in even more detail,” he said.
This is also shown by the number of financing rounds. 33 deals were closed in the second quarter, and 54 financing rounds by German fintechs in the first half of the year. For comparison: 183 deals were closed in the first half of last year, compared to 142 in 2020.
Apparently, investors still have enough capital. For example, HTGF was able to fill its own fund (“HTGF IV”) with 400 million euros in June, while its predecessor only had 320 million. “Many funds have just been filled. So the money is there that needs to be invested,” said von Frankenberg.
Trend is likely to continue
This trend should also continue in the third quarter. The digital insurance company Wefox has already raised 400 million dollars from investors, as the insurtech announced on Tuesday.
But not all fintechs can currently score with investors. Some fintech sectors are coming under severe pressure around the world, such as BNPL fintechs. In technical jargon, “Buy now, pay later” (BNPL) stands for paying in installments and on account when shopping online. One of the best-known BNPL companies is Klarna.
The Swedish payment service provider was able to collect 800 million dollars in a financing round, as the company announced on Monday. However, the valuation collapsed by 85 percent to $ 6.7 billion. In the last round of financing in June last year, Klarna was valued at $45.6 billion.
“The ratings of the strong corona winners are normalizing,” said Nagel. This also includes Klarna. Von Frankenberg also explains, “We’ve seen huge exaggeration in some reviews over the past year. That’s why there are now even bigger setbacks.”
More: The payment service provider Klarna is feeling the effects of the delicate market environment. The rating collapses.