Fintech Sector Investment Remains Muted While Opportunity Persists in 2024; Silicon Valley Bank Releases Fourth Edition of Future of Fintech Report

Rhea-AI Summary

Silicon Valley Bank's 2024 Future of Fintech Report reveals a significant slowdown in fintech investment, with VC fundraising dropping 91% since 2021 peak. Despite challenges, nearly 80% of fintech companies improved EBITDA margins year-over-year. The sector shows signs of adaptation with AI emerging as a bright spot, particularly in customer service and productivity applications. Investment patterns have shifted towards early-stage deals, with seed rounds outnumbering Series A by 3:1. AI-native fintech companies are showing stronger value creation, with a median 4.0x return versus 2.7x for legacy companies in 2024 VC deals.

Positive

• 80% of fintech companies improved EBITDA margins year-over-year
• 30% of companies now have 6-12 months runway, up from 20% last year
• AI-native fintech companies showing 4.0x median value creation vs 2.7x for legacy companies

Negative

• Fintech VC fundraising dropped 91% since 2021 peak
• Fintech's share of VC dollars decreased from 1/5 in 2021 to 1/12 in 2024
• Large deals ($100M+) dropped from 65% to 34% of sector activity
• VC investment pace decreased from 2+ deals/month to less than 1 deal/month

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2024 report highlights Fintech founders diligently improving bottom line in 2024 despite investments dropping 91% since peak in 2021

SAN FRANCISCO, Oct. 23, 2024 /PRNewswire/ -- While fintech companies face significant headwinds – from high interest rates to increasing regulatory oversight – they are also finding opportunity in 2024, according to the latest Future of Fintech Report from Silicon Valley Bank (SVB), a division of First Citizens Bank. Venture capital (VC) investment remains muted, hovering near a six-year low for the sector, as deal flow has shifted toward the early stage, with more than three seed deals for every one series A. Artificial intelligence (AI) is also emerging as a bright spot for the industry as investors and founders explore its growing role in the sector. 

The 2024 Future of Fintech Report provides a detailed analysis of the fintech market, including investment and fundraising trends. It also looks at the growing importance of AI in horizontal applications, including customer service and productivity, as well as vertical applications specific to finance.

"While fintech companies face challenges, we anticipate broader recovery in investment to begin in 2025 as we continue to see opportunities for the industry," stated Nick Christian, Head of National Fintech and Specialty Finance at Silicon Valley Bank. "For example, US fintech companies are becoming more efficient with nearly 80% of fintech companies improving EBITDA margins year-over-year and nearly 30% now having six to 12 months of runway left, up from 20% last year. At the same time, generative AI is opening possibilities for value creation in fintech - whether it's legacy companies improving efficiencies by reducing labor costs, or AI-native companies building novel solutions."

Additional findings from the Future of Fintech 2024 report include:

Fintech Investment Key Data Points

• Fintech-inclined VC fundraising dropped 91% since its peak in 2021, with funds raising $5B through September. Announced funds, including those that have not yet closed, totaled $9B, the lowest since 2020.
• One in twelve VC dollars went to a fintech company in 2024, down from one in five dollars in 2021.
• VC firms have slowed their pace of deployments in fintech. In 2021, the most active 100 US fintech investors were closing more than two deals per month. That pace has dropped to less than one deal per month this year.
• In 2021, fintech deals over $100M accounted for 65% of deal activity in the sector. In 2024 this number has dropped to 34%.

AI Investment by the Numbers

• Since 2021, mentions of AI in fintech corporate earnings calls have increased 4x.
• AI-native fintech companies are experiencing an advantage in incorporating AI tools into early stage products while legacy fintechs are largely cutting human capital costs in order to embrace AI.
• Native AI companies in fintech create more value per dollar invested than Legacy/first-generation fintechs (i.e., median for 2024 VC deals was 4.0x for Native AI versus 2.7x for Legacy/First Generation AI).

Learn More
To read the complete Future of Fintech 2024 report, click here: The Future of Fintech Report 2024 | Silicon Valley Bank (svb.com)

A leader in providing market insights about the innovation economy, SVB has produced more than 10 new market reports in 2024. For the complete library of SVB's signature reports, please visit Market Research Industry Trends & Insights | Silicon Valley Bank (svb.com)

About Silicon Valley Bank
Silicon Valley Bank (SVB), a division of First Citizens Bank, is the bank of some of the world's most innovative companies and investors. SVB provides commercial and private banking to individuals and companies in the technology, life science and healthcare, private equity, venture capital and premium wine industries. SVB operates in centers of innovation throughout the United States, serving the unique needs of its dynamic clients with deep sector expertise, insights and connections. SVB's parent company, First Citizens BancShares, Inc. (NASDAQ: FCNCA), is a top 20 U.S. financial institution with more than $200 billion in assets. First Citizens Bank, Member FDIC. Learn more at svb.com.

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SOURCE Silicon Valley Bank

FAQ

How much has fintech VC fundraising declined since 2021?

Fintech VC fundraising has declined 91% since its peak in 2021, with funds raising $5B through September 2024.

What percentage of fintech companies improved their EBITDA margins in 2024?

Nearly 80% of fintech companies improved their EBITDA margins year-over-year in 2024.

How does value creation compare between AI-native and legacy fintech companies in 2024?

AI-native fintech companies showed 4.0x median value creation for 2024 VC deals, compared to 2.7x for legacy/first-generation fintechs.

What is the current ratio of seed deals to Series A deals in fintech?

There are more than three seed deals for every one Series A deal in the fintech sector.