After a difficult 2020 during which global investment plummeted due to the pandemic, 2021 emerged as a very successful year for both public and private markets, with various sectors recording record growth in funding.
“From a FinTech perspective, there was over $130 billion of primary funding deployed across the industry. That accounted for about 20% of global funding, [making] FinTech one of the largest sectors and largest beneficiaries of the growth in the total capital deployment,” Abhimanyu Toor, managing director at London-based FinTech advisory firm Royal Park Partners, told PYMNTS in a recent interview.
Not only did FinTech-related funds nearly double, but the deal count increased by 30% to 50% driven largely by so-called “mega rounds” — capital of $100 million or more raised by large, privately held FinTech unicorns.
There was also a clear increase in appetite for emerging market assets last year, Toor said, as investors turned to less competitive, less crowded markets for deals. “Western markets have become extremely competitive, valuations are skyrocketing, and given the increasing number of players on the market, investors are starting to look more broadly at where to deploy their capital,” he added.
Successful exits in these developing regions have further boosted growth in the emerging markets. From Stripe’s acquisition of Nigeria-based firm Paystack to the acquisition of Africa-focused remittance firm Sendwave by U.K.’s WorldRemit, these deals have shown that “there are now clear markers in the market, that emerging market assets can be successful, and investors can realize a return,” he pointed out.
Vision, Data, Execution Capability
Negotiating deals can be a daunting task for any startup or company, and the U.K.-based corporate advisory firm guides firms and founders on how best to connect with the right investor base and ensure that on one hand their vision is deliverable and can be backed by data, and on the other the execution capability of the business is realistic.
But even though all three elements are critical to success, Toor said different investors have different risk appetites.
“You will find investors who are very willing to back a business [solely] based on vision, [others] who need clear and hard data and [then those] who are generally more conservative, pragmatic, and need a clear execution plan [before committing],” he explained, adding that once those three elements are incorporated into a pitch, the chances of success are “pretty high.”
However, he went on to say that the lack of a strong management team that can deploy funds in a “pragmatic and sensible” manner, is enough to deter investors and make any deal process a challenging one, he said, even if a founder has the best pitch deck and the best product at hand.
“If you’re out there fundraising and you don’t have a clear grasp of your numbers, or what the money is being raised for and how you’re actually going to deploy it, and what that’s going to mean for your business in the next 12 to 24 months — that is the biggest red flag,” he said.
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Two recent high-profile transactions in which the London-based firm has been involved include advising French full-service payment platform Limonetik during its acquisition by cross-border payment leader Thunes, as well as acting as the exclusive financial advisor to Czech buy now, pay later (BNPL) firm Twisto during a sale to Australian BNPL giant Zip last year.
Africa: Land of Opportunities
From a regional perspective, Toor sees Africa as a major area of interest for FinTech funding going forward, particularly the payments sector. With companies like Opay, Wave, Chipper Cash as well as Flutterwave valued at more than $3 billion today, opportunities to tap into the region’s FinTech industry growth are endless. “It’s no longer ‘the next big thing’ but [rather it] will continue to be the big thing in the near future,” he noted.
Behind-the-scenes actors operating the infrastructure that lies behind consumer-facing FinTech offerings are also going to see increasing interest as the consumer-facing part of the market becomes more and more competitive, Toor said.
These include infrastructure that is connecting the different payment service providers (PSPs) or infrastructure that is enabling banks and telecom operators to be able to roll out FinTech offerings.
And unlike the U.S. or Western Europe where consumer-focused FinTech offerings came after people were traditionally banked, millions remain unbanked or underbanked across the African region and as a result are circumventing the whole traditional financial ecosystem and going straight to the more modern offerings.
“This means that the pickups are much higher, the growth trajectory is much higher and that the TAM [total addressable market] is absolutely huge,” he said. “Unlike Western Europe, you don’t need a FinTech to substitute other products — FinTech is the only product, so I think Africa will continue to be extremely successful [in that regard].”
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NEW PYMNTS DATA: ACCOUNT OPENING AND LOAN SERVICING IN THE DIGITAL ENVIRONMENT
About: Forty-two percent of U.S. consumers are more likely to open accounts with FIs that make it easy to auto-share their banking details during sign-up. The PYMNTS study Account Opening And Loan Servicing In The Digital Environment, surveyed 2,300 consumers to examine how FIs can leverage open banking to engage customers and create a better account opening experience.
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