There are 488 ‘unicorns’ worldwide – startups valued at more than $1 billion apiece. As of August 2020, those companies are worth a combined total of $1.5 trillion.
Three of the top 10 unicorns by valuation are Chinese. The most valuable by far is ByteDance, which is already a ‘hectocorn’ with a valuation of $140 billion – higher than some entire startup sectors.
In a portfolio of over 20 products, the company’s viral video app TikTok – currently in the sights of two potential US suitors, Microsoft and Oracle – has been downloaded over two billion times.
So what of financial technology? In FinTech alone, there are 66 VC-backed unicorns, worth $248 billion – more than twice the valuation of the healthcare unicorn space, where 46 such companies have racked up a combined worth of $116.8 billion.
However, Q1 2020 was one of the worst ever quarters for FinTech unicorns, according to market analysis firm CBInsights, while healthcare flourished as investors looked for promising solutions during the pandemic.
But the good news is that FinTech funding rebounded in Q2, though overall deal activity continued to fall. FinTech investments increased 17 percent from the previous quarter to $9.3 billion, including the birth of one new unicorn, Upgrade.
Monthly deal activity hit a low of 127 deals in April, before picking up in June with 141 deals.
FinTech mega-rounds (deals worth $100 million plus) hit a new quarterly high of 28 as the largest companies in the space raised additional funding, reinforcing the impression that this is a consolidating market.
North America, Europe, South America, Africa, and Australia all saw an increase in FinTech funding quarter on quarter (QoQ), while funding to Asia-based companies fell by 37 percent to $1.6 billion.
One reason for some regions’ QoQ uptick in FinTech investments is the push towards digital financial services and money management advice during the crisis. Another is the gig economy’s demand for flexible banking services, faster payments, and insurance coverage. Many startups are now targeting both these areas.
Nonetheless, annualised deals and dollars have fallen to pre-2018 levels – a descent that began before the pandemic, indicating the presence of other market headwinds.
Despite the overall contraction, CBInsights identifies five trends to watch in this space:
- Embedded FinTech products are gaining traction in areas such as ecommerce, banking, insurance, business services, HR, and real estate.
- A new generation of service providers is emerging on the back of Open Banking – though uptake of Open Banking by UK customers has been underwhelming since launch, with a little over one million users.
- The Covid-19 bounce for ecommerce can be seen as a tailwind for FinTech specialists. In the US, for example, retail sales in April jumped by 27 percent year on year.
- Wealth management trading activity surged during the pandemic, leading to Q2 market consolidation.
- A flurry of FinTech IPO filings also took place in Q2, bucking a recent trend for startups remaining private. Q2 filings included Lemonade, nCino, and Rocket Companies.