Concerned about the state of the global economy, and compounded with fears of a recession, elevated inflation and interest rates, investors are currency wary when it comes to measuring the valuations of FinTech companies.
KPMG Canada reports that the first half of 2023 was one of the weakest for valuations since the first half of 2020. That’s when the outbreak of the COVID-19 pandemic rattled global markets and the economy.
The VC investment deal count in Canadian tech companies has fallen steadily since the second quarter of 2022.
“Geopolitical concerns and the failure of several banks in recent months are also playing into investors’ decisions,” said Geoff Rush, partner and national industry leader for financial services at KPMG in Canada. “On the latter, the fact that some loan portfolios and investment teams have been acquired by financial institutions recently illustrates that there are still opportunities in FinTech.”
In the first six months of 2023, investment (including venture capital, private equity and merger and acquisition activity) totaled $478.8 CAD ($353.7 million USD) across 57 deals. That’s down from the $1.48 billion CAD ($1.09 billion USD) invested across 87 deals in the second half of 2022, and $11.5 million CAD ($834.1 million USD) invested across 109 deals in the first half of 2022, according to data compiled by PitchBook for KPMG in Canada.
This analysis fits with PitchBook figures shared earlier with BetaKit at the Collision Conference in Toronto recently. As the economy deteriorated, non-traditional investors pulled back from the venture capital (VC) space and the initial public offering (IPO) market cooled, PitchBook reported in late June.
The latest available PitchBook data on the Canadian market, shared with BetaKit, indicates that the VC investment deal count in Canadian tech companies has fallen steadily since the second quarter of 2022.
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Despite the slowdown, there have still been some major Canadian funding rounds this year. Per PitchBook, the biggest have been Svante, Cohere, Peak Power, Hostaway, Blockstream, LayerZero Labs, Abdera Therapeutics, Jobber, Kepler Communications, and Eavor.
According to Rush, the downward trend will likely continue for the rest of the year. However, pockets of activity will be seen in blockchain, artificial intelligence, and machine learning.
“There are a lot of financial services companies that rely significantly on technology and are looking to adopt more emerging technologies such as generative AI, so that should bode well for the FInTech space in the near- to long-term,” he added.
Venture capital (VC) firms didn’t fare much better. They invested $352.3 million CAD ($260.1 million USD) into Canadian fintechs the first six months of 2023 (across 47 deals), down nearly four-fold from the last six months of 2022, when $1.3 million CAD ($989 million USD) was invested (across 65 deals), and the first half of 2022 when $1.09 million CAD ($805.7 million USD) was invested (across 95 deals).
The majority of deals were early-stage and seed-round investments, followed by late-stage funding rounds. There were no initial public offerings in the first half of the year, continuing the drought from last year, KPMG noted.
Georges Pigeon, a partner in KPMG in Canada’s deal advisory practice, says the early and seed-round activity suggests that investors are interested in funding young, innovative companies at reasonable valuations – a positive sign for the health and growth of Canada’s FinTech ecosystem.
A case in point of the sluggishness in the FinTech space came when Nuvei released its earnings report in early August. The Globe and Mail reported that “Not only were Nuvei’s quarterly earnings lower than expectations, with adjusted earnings 15 per cent lower than analyst estimates, but the company trimmed its revenue outlook for the second half of the fiscal year and also lowered its medium-term sales guidance to 15 per cent to 20 per cent annually, down from more than 20 per cent annually.”
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