US venture capital investments in Fintech startups are on the rise in 2019. Overall investment size has already overtaken 2018 levels and is expected to continue to grow 42% year-over-year. On the contrary, the number of deals has decreased. Angel/ seed and early stage investments decreased in size while follow-on rounds investment size increased. Thus, the later stage deals value was significantly larger than the earlier stages deals value in 2018.
Average and median pre-money valuation and deal size increased considerably as of September 2019 compared to the previous year. This was caused by the rise of later stage deals with respect to earlier stage deals. Median deal size used to be larger in 2006 but then fell to its minimum value in 2013. As for now, median deal size levels almost recovered to pre- recession levels and might reach nearly the same value in 2019. In 2014 there was an increase in later stage deals investment size and thus there was an increase in median and average deals value. In the later 2018 and 2019 Blockchain companies started seeking VC investments more compared to the previous periods when firms were going for an ICO.
In general, the market performed well as of the third quarter of 2019. Lemonade, Carta, Chime, Bill.com, Hippo, C2FO, Next Insurance were the US-based companies that reached values of over US$ 1 billion in 2019.
Deal Activity
US venture capital deals value within the Fintech industry remained at a stable level between 2006 and 2010. Starting from 2011, the overall deal value has continue growing slowly. The largest increase happened in 2018 when the deal value climbed to US$ 11.6 billion. 2019 levels are expected to reach a record value of US$ 16.4 billion and outperform 2018 by 42%. However, if to look at a deal count, it is notable that the number of deals is expected to be slightly lower in 2019 due to the higher average and median deal value in 2019.
Deal count was largely growing between 2006 and 2015 with a slight decline in 2016. In 2017 the market also experienced an ICO bubble. At that time, most of Blockchain projects pursued an alternative fundraising process, thus the VC market remained stable compared to 2016.
As for the end of September, this year has already outperformed 2018 in terms of the deal value and reached US$ 12.3 billion with 577 deals.
The Fintech industry is on the rise, as can be seen from a comparison to the overall US venture capital state. The overall deal value among all the industries decreased slightly as of the end of September and is expected to be 7% lower than the year before.
Overall deal value increased by 2,150% since 2006 from US$ 0.5 billion to US$ 11.6 billion in 2018. It is expected to continue to grow further in 2019. Year-over-year growth is also expected to be significantly larger (+42%) in 2019 compared to 2018. As for 2018, the value already increased by 65% due to the high popularity of Fintech projects.
The deal count also increased within 12 years time period by 911%. The growth rate for deals count was lower compared to deals value due to the increase in average investment size and project valuation, which will be shown later in the report.
Year-over-year change in the deal count was negative meaning that the number of deals fell in 2019 and is expected to be smaller compared to 2018. As for now, in the third quarter of 2019, there were 577 deals versus 880 in 2018.
Deal Size by Stage
Angel and seed stage investments remained as a similar proportion of total investments throughout the 2006 to 2019 period. However, early VC and later VC investments are showing different results every year. Later VC stage deals always had a larger proportion of investments compared to the early VC stage deals. In 2019 it is expected that there will be a drop in early VC deals value. The overall share of early VC stage deals might be 30% compared to 66% later VC stage deals’ share. The lowest deal value for the early VC stage was in 2014–2015 with 28%.
Angel and seed stage investments share is expected to decrease from 7% in 2018 to 4% in 2019. The largest share was observed in 2013 at 13%, while most of the time angel and seed stage investments were between 7–8% of total VC investments.
Angel and seed stage investments are expected to drop 17% in 2019 on a year-over-year basis. This stage investment value increased by 38,095% for 12 years as in 2006 it was US$ 2.1 million compared to US$ 802 million in 2018 and an expected US$ 664 million in 2019. Later VC stage is expected to have the largest increase in deals value with a 79% year-over-year growth rate, however, this stage investments show the smallest 12 years change (2018-over-2006).
Median and Average Deal Sizes (US$ M)
The average deal size for the first three quarters of 2019 has been US$ 23 million, which is 50% larger compared to 2018 amounts. The average deal size remained between US$ 5–6 million during 2009–2013 until it then started to grow. It reached US$ 13 million in 2015.
Such an increase in the average deal size can be caused by the increase of the later stage VC investments and reduction in angel/seed and early stage VC investments. Although there is a 50% growth in the average deal size value, there is no change in the median size investments in 2019 year-over-year, which is still US$ 4 million. It means that there was a similar number of deals for each of the stages, however the later VC stage had a larger deal size in 2019. The situation still can be changed by the end of the year and we can see different median size, however, it is still most likely that the average investment size will be larger than the 2018 value.
From 2006 and until 2013, the median investment size was decreasing. It fell from US$ 5 million in 2006 to US$ 1.5 million in 2013, at which point it started increasing, reaching US$ 4 million in 2018. As for the end of September 2019, the median investment size remained the same as in 2018 at US$ 4 million. Thus, the value decreased by 20% with 12-years time period with 0% year-over year change.
Average investments showed different results with a 12-years increase of 117% and 50% year-over-year change. The average investment size was US$ 7 million in 2006 and increased to US$ 23 million at the end of September 2019.
Previously, it was mentioned that such an increase in the average investments and slight change in median investments can indicate the increase in the later VC stage investment size.
Median and Average Pre-Money Valuation (US$ M)
Similar to the median and average deal sizes, pre-money valuation significantly increased in 2019 and reached US$ 407 million, indicating the growth of average later stage VC project valuation. In 2018 average pre-money valuation also largely increased compared to 2017.
Median pre-money valuation had a slight increase in its value and reached US$ 31.4 million as of the end of September 2019. This can mean that there was no significant increase in angel/seed and early VC pre-money valuations, the increase more likely to be affected by the later stage VC deals.
The year-over-year increase in the median pre-money valuation was 26%, which is smaller than in 2018 when the growth rate was nearly 43%. A similar pattern was noticed for the average pre-money valuation year-over year change that is 102% as of the end of September 2019 compared to a 110% year-over-year change observed in 2018.
Both median and average pre-money valuation increased within a 12-years period. Median pre-money valuation grew by 46% in 2018 and reached US$ 25 million compared to US$ 17 million in 2006. The average pre- money valuation increased by 412% and reached US$ 201.6 million in 2018 compared to US$ 39.4 million in 2006.
Read Q&A section with FAS | Fintech Advisory Services CEO Elena Obukhova who shares market insights and projections. Q&A section is available in PDF version of the report, download it here.
About FAS
FAS is established in Hong Kong and provides financial services to startups and companies willing to evolve in the exciting blockchain ecosystem. FAS offers include business development and tokenization best practices, risk management and stress testing, strategic planning and IEO/STO preparation.
FAS can rely on a strong network of professionals from different areas and expertise and connect with investors and accelerators worldwide. Believing in decentralisation, we apply this ideal to our business strategy by having consultants available at any time all over the world. Thinking out of the blocks is our motto.
Visit our website.