The second quarter of 2023 was one of the weakest quarters for valuations of Canadian fintech companies since 2016 and the downward trend is likely to continue through the end of the year, according to the firm KPMG. Opportunities for entrepreneurs and investors still exist.
The seed funding and seed funding activity observed suggests that investors want to fund reasonably priced, innovative start-ups, which is a positive sign for the health and growth of the fintech ecosystem in the country. according to Georges Pigeon, Partner in KPMG’s Transaction Advisory Group in Canada.
“Now could be a good time to start a fintech company. With reasonable company valuations, many investors have time to see their investments pay off, which is a good opportunity for new fintech to emerge. »
Pigeon says some fintechs may find a more open environment towards the end of the year as investors’ fears of a recession ease as they anticipate a potential plateau in increases interest rates.
Analysis released Thursday by KPMG indicates that valuations of fintech companies continue to fall as investors fear a recession.
During the first six months of the year, investments (including venture capital, private placements and M&A activity) totaled US$353.7 million in 57 deals.
That amount is well below the US$1 billion invested in 87 deals closed in the second half of 2022 and the US$834 million invested in 109 deals in the first six months of 2022, according to data compiled by PitchBook for KPMG at Canada.
While investment will continue to be weak going into the end of the year, we’re likely to see hotbeds of activity in areas like blockchain, artificial intelligence and machine learning, Geoff Rush points out, Partner and National Leader, Financial Services at KPMG in Canada.
Several financial services companies rely heavily on technology and are looking to adopt more emerging technologies like generative artificial intelligence, which should bode well for the financial technology sector in the short and long term, he notes. he.
Geoff Rush says investors remain concerned about the state of the global economy as fears of a recession, high inflation and high interest rates continue to weigh heavily on corporate valuations, causes them to pause to reflect on their current strategies and investments.
Geopolitical concerns and the failure of several banks in recent months are also influencing decisions, he says.
On this last point, the fact that some loan portfolios and investment teams have recently been acquired by financial institutions shows, in his view, that there are still opportunities in fintech.
We could see some stability returning to funding markets by late 2023 or early 2024, Pigeon believes. “Unfortunately, this timeline could mean that some more mature fintech companies that still haven’t returned to positive cash flow could face some very tough choices by then, such as selling at a loss or simply closing their doors. »