Investment in Canadian fintechs has taken a hit in the first half of 2023, as valuations continued to decline to levels last seen in the early days of the pandemic, according to KPMG in Canada.
Investment, including venture capital, private equity and merger and acquisition activity, totalled US$353.7 million across 57 deals in the first six months of this year, down from the $1.09 billion invested across 87 deals in the second half of 2022.
Investment levels were also lower than the first half of last year, when investment in Canadian fintechs reached $834.1 million across 109 deals, based on data compiled by PitchBook for KPMG in Canada.
“Investors are still quite concerned about the state of the global economy, with fears of a recession, elevated inflation and interest rates continuing to put a significant strain on valuations, and that’s causing them to pause and reflect on their current investments and strategies,” said Geoff Rush, partner and national industry leader for financial services at KPMG in Canada.
KPMG called the six-month period “one of the weakest for valuations” since the first half of 2020.
Data showed that the second quarter of 2023 was the weaker of the two quarters – and one of the weakest quarters for Canadian fintech valuations since the third quarter of 2016, KPMG in Canada reported.
In the first quarter, investment in Canadian fintech totalled $297.3 million across 30 deals, but it fell more than five-fold to $56.5 million across 27 deals in the second quarter.
“Geopolitical concerns and the failure of several banks in recent months are also playing into investors’ decisions,” Rush added.
“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 Canada, the majority of deals in the first half were early-stage and seed-round investments, at 19 and 15 respectively, followed by 10 late-stage funding rounds.
Georges Pigeon, a partner in KPMG in Canada’s deal advisory practice, said that “right now could be good timing to launch a fintech startup” given that investors would be coming into the early financing rounds.
“At reasonable valuations, many investors have time to see their investment through, so it’s a good opportunity for new fintechs to emerge,” he added.
A decline in global fintech investment was revealed in the latest bi-annual KPMG Pulse of Fintech, with both total funding and the number of deals down from $63.2 billion across 2,885 deals in the second half of 2022, to $52.4 billion across 2,153 deals in the six months to the end of June 2023.
The US is the only country to have bucked a wider trend of declining global fintech funding.