INTRODUCTION
On behalf of the Tech.eu team, and our partner Finstar, our gratitude for downloading and reading our report on the State of European Fintech in 2021, which is based on analysis of data we’ve collected and vetted on the high-growth sector from the start of 2017 until the end of the second quarter of 2020 (to account for re- porting lag and allow us to take a deep dive).
2020 was a year that will undoubtedly be remembered as the year of the coronavirus pandemic, which to this day is wreaking havoc on businesses - even entire economies - across the world.
The technology industry held its collective breath when the COVID-19 pandemic hit last year, but apart from some obviously hard-hit sectors such as travel and tourism (and some less visible effects like the mounting pressure on scores of early-stage tech startups that were still looking for the holy product-market-fit), it con- tinues to grow and thrive across the glove.
In Europe, things are no different, and the fintech sector continues to be one of the most important areas of innovation across the continent, particularly in big countries like the UK, Germany and France.
At Tech.eu, we meticulously keep track of technology startup and scale-up funding rounds, M&A transactions, IPOs, partnerships, active investors and more, and we have a particular interest in keeping track of the fintech scene as one of the most prominent fields of growth and technological innovation in Europe.
In this report, we present you with the most relevant numbers coupled with analysis needed to understand who and what is driving European fintech’s ongoing maturation. The research report also includes a look at what the effect of the coronavirus pandemic has had on markets and consumers, and ultimately the fintech sector, and quotes from industry insiders, entrepreneurs, investors and experts to complement the intelligen- ce that can be derived from it. Additionally, we take a look at a number of alternative routes to funding for fintech (and other types of) startups in Europe and beyond.
Even though our analysis of the data stops at the end of Q2 2020, we have taken note of a number of inte- resting developments that have happened in the second half of a challenging year. On 10 February 2021, we will host a virtual event where we’ll have a discussion with fintech leaders about this report’s findings, and present updated data for 2020 and the first month of the new year.
This is necessary, because after the cut-off date for the analysis in this report, numerous things of note have happened.
For instance, in September 2020, Swedish payments service provider Klarna raised $650 million, at a valua- tion of $10.65 billion, ranking the company as the highest-valued private fintech company in Europe. It didn’t hold on to that title for too long, because in January 2021 UK-based payments business Checkout.com was valued at $15 billion after a $450 million investment led by Tiger Global.
In July 2020, UK fintech scale-up TransferWise reached a $5 billion valuation in a secondary share sale, a few months before announcing that it made a net profit for the fourth year in a row, as it gears up for a 2021 IPO.
In Germany, credit marketplace auxmoney scored €150 million in growth funding, while France-based Lydia extended its Series B round, raising an additional $86 million led by Accel. Israeli fintech-as-a-service com- pany Rapyd raised $300 million, while London-based Curve is to launch in the US after securing a $95 mi- llion round - and the exact same amount was raised by UK fintech GoCardless in December 2020. Neobank Monzo, meanwhile, closed £60 million in new funding before the year was over.
Interestingly, there are also major headlines coming from more nimble ecosystems across Europe (e.g. Bel- gium-based Unifiedpost’s IPO, The Netherlands-based payments platform Mollie raising €90 million, Italian
3 mobile/digital payment platform Satispay securing €93 million in funding in a Series C round co-led by Ten- cent, Square and other investors, and Austria’s Bitpanda, raising Series A round of $52 million led by Peter Thiel’s Valar Ventures.
The list goes on, but the point is that our research report’s main findings and recent headlines suggest the same conclusion: overall, the state of the European fintech sector is to be considered rather healthy (but not without challenges).
But do all of these headlines hide an imminent crisis, as early-stage fintech funding continues its inevitable dip and the sector faces a period of uncertainty and intense pressure from various angles?
Or does the crisis, in fact, bring a wealth of opportunities for burgeoning fintech startups in a rapidly changing world as the way we work, shop and spend our free time continues to shift as we hopefully look forward to a post-COVID-19 world?
Please enjoy the report, put together with the kind help of Finstar, share it with your friends, and don’t hesitate to give us feedback!
We hope the new year has gone off to a good start for you, and wish you all the best for 2021.
Robin Wauters Founding Editor, Tech.eu
The COVID-19 crisis has brought forward a lot of changes in the world, altering the way we work, shop, co- llaborate and move around. As this report shows, many trends that have been accelerated by the coronavirus pandemic have in fact proven to be beneficial to the European fintech industry. Around €10 billion of funding was raised by fintech startups and scale-ups in Europe throughout 2020, and we’re seeing bigger rounds, bigger companies, and bigger ambitions. This report demonstrates that the European fintech sector is in good shape, and Finstar is looking forward to invest in the future leaders in this space.
Oleg Boyko Founder and Chairman of Finstar Financial Group
4 BROUGHT TO YOU BY FINSTAR
Finstar Financial group is an international priva- cellence in startups, turnarounds, joint ventures and te equity and investment advisory firm with around mergers & acquisitions. USD$2 billion of assets under management (AUM). The company is headed by Oleg Boyko and has a Mr Boyko is also involved in philanthropic ventures diversified investment footprint in more than 30 coun- through his Parasport Foundation. During the CO- tries. Finstar’s investment professionals target oppor- VID-19 pandemic of 2020 the foundation provided tunities in Europe, the US, Asia, Latin America and targeted assistance to over 2,000 para-athletes re- the CIS. The group is strongly focused on the fintech presenting 28 different sports across 35 regions of sector and has been highly successful historically in Russia. Mr Boyko was also among the invited atten- banking and financial services, IT, real estate, FMCG dees of the annual Forbes 400 Summit on Philan- retail, media, and entertainment sectors. Finstar has thropy in 2020. a proven track record of 25 years of operational ex-
FINSTAR FINTECH PRESENCE
5 BROUGHT TO YOU BY TECH.EU
Tech.eu is the premier source of European technology news, data and market intelligence, providing unpre- cedented insights into the tech startup, investment, M&A and IPO activity across Europe (including Israel, Russia and Turkey).
Founded in 2013, Tech.eu combines solid editorial products with data-driven market intelligence reports across investment stages, geographies and sectors, as well as bespoke event, research and consultancy services.
Tech. eu offers a curated selection of stories on European startups, scale-ups, venture capital, policy and more, through a combination of a unique online magazine, industry newsletters, reports, a podcast, job plat- form and event calendar.
For more information on Tech.eu and our partnership opportunities, get in touch with [email protected].
6 EXAMINING THE IMPACT OF COVID-19 ON THE FINTECH INDUSTRY
Arguably, it’s still too early to really understand what With some obvious exceptions - imagine the impact the impact of the coronavirus pandemic will be on of COVID-19 on providers of in-store payment ter- the technology startup and innovation industry as a minals, for example, or those specifically targeting whole, but as part of our research we’ve looked into business travelers with their services - it is evident some of the trends that pertain to the fintech sector that the above trends are generally positive for inno- in particular. vators in the fintech industry. This is especially the case when coupled with an accelerated move to a As a response to the raging pandemic, entire coun- cashless future and advancements in infrastructure tries have gone into (different types of) lockdown and and connectivity, open banking services, security, resorted to school closures and curfews, travel was hyper-personalisation, big data, artificial intelligence banned all across the world, companies of all sizes and robo-advice technologies. These trends were al- have experienced near-instant financial woes, and ready underway, but the coronavirus pandemic has governments need to look for rapid ways of providing expedited many of them. support to scores of individuals and businesses, bo- rrowers and lenders alike, as the uncertainty remains Needless to say, the current situation can generally a huge factor. be described as a boon for a slew of tech companies that can e.g. process online payments, provide a ‘Buy In such an unprecedented environment, seismic Now, Pay Later’ solution or quick working capital for shifts are inevitable - and some irreversible. SMEs, run a credit or loan marketplace, help financial industry behemoths with their ‘digital transformation’ There are fewer things to spend on in lockdown and rid of their aging IT systems, assist smaller firms mode, which means savings rates spike, while de- with cash-flow management, offer user-friendly apps mand for mortgage loans decreases. The amount of for personal or business banking, or built a way for people shopping, paying, (both personal and busi- users to cut costs on things like transferring money ness) banking, trading stocks and loaning money on- online, raising funds and other types of transactions. line unavoidably increases. So does the interest grow in cryptocurrencies, and blockchain-based assets in This is - at least partly - the reason why companies general, but also the pressure on insurers and their like Klarna, TransferWise, Bitpanda, Checkout.com, underwriters. auxmoney, TrueLayer, N26, Revolut, solarisBank, SME Finance, Thought Machine and many others Meanwhile, large-scale digitization efforts are kicks- are actually thriving in the midst of this global crisis, tarted or accelerated across the financial services and are bound to continue growing post-COVID-19 value chain as the industry reacts to the sudden new - and also why it remains interesting for the global in- reality, and Europe’s fintech-friendly regulatory initia- vestment community to scout for the next innovators tives - which in this case tend to create opportunities in European fintech and insurtech scene. for newcomers and challenges for incumbents. Now, let’s dive into the numbers.
7 KEY TAKE-AWAYS
European fintech companies raised a total of €3.52 billion in 2018; this number ballooned by 150% to €8.81 billion in 2019.
In the first half of 2020, around €4 billion was raised by European fintech companies, already more than in the full year 2018 but lagging behind on the curve of 2019, when more than €8.8 billion in funding was secured.
Previous research indicates that fintech is the category in Europe where most funding flows to, across all stages but most notably at late-stage: While Tech.eu tracked only four €100 million+ fintech financing deals in Europe in 2018, that number increased by 5X in 2019 alone.
The significant growth in Europe was driven largely by fintech companies raising growth funding (+€15 million rounds) and late-stage financing deal of €100 million or more. The number of early-stage funding rounds (less than €15 million) effectively decreased during the three full years analysed by Tech.eu.
Tech.eu tracked on average 369 funding deals annually for fintech companies across Europe from 2017 to 2019; more than one per day. In the first half of 2020, we tracked 219 fintech funding rounds, suggesting this will be a record year.
The size of financing rounds for fintech companies is growing quickly: the mean funding size per round more than doubled in the analysed timeframe, from roughly €11 million on 2018 to €25.5 million in 2019.
From 2017 to H1 2020, the UK firmly took the lead in European fintech with just south of 500 fintech fun- ding deals during that timeframe, with Germany and Sweden following with an almost equal number of transactions (172 and 155, respectively).
Around €8.1 billion euros was invested in UK fintech companies in the last three full years, which is 48% or almost half of all fintech financing rounds Tech.eu recorded from 2017 to 2019; Germany comes in at second place with €3.5 billion.
Adding the numbers for the first half os this year, we end up with more than €10 billion invested in UK fin- tech companies in the analysed timeframe (S1 2017 - Q2 2020).
No less than 14 UK-based fintech scale-ups make it to the top 20 European companies based on the total size of funding closed.
8 Index Ventures, which has backed the likes fo Funding Circle, Adyen, iZettle, TransferWise and Revolut, topped the list for European fintech funding round from 2017 to 2019.
In the last three full years, British and American investment firms werethe most active backers of Euro- pean fintech sacale-ups, with 13 rounds shared between them, compared to two each for their French and German counterparts.
There has not been a similar surge in exit activity. As European fintech companies raise more funding, their desire or need to go public or sell goes down. Even though there were more acquisition deals in the European fintech space in 2019 than inn 2018, there’s been a 28.5% drop from 67 to 48 compared to 2017.
The picture becomes even clearer when you look at the size of the exits in the researched time frame, in particular acquisitions, which decreased from €13.5 billion in total to nearly €3 billion from 2017 to 2019.
The biggest acquisition took place in March 2019, when Fidelity National Information Services (FIS) agreed to buy Worldpay, the UK’s leading processor of payments, in a $43 billion deal.
From 2017 to 2019, Tech.eu monitored 41 fintech exits (mostly acquisitions), followed by Germany and Sweden with 28 and 22 IPOs, acquisitions and/or mergers, repectively. In France there were only 6 fintech exits in three full years.
9 CONTENT TABLE
INTRODUCTION 3
BROUGHT TO YOU BY FINSTAR 5
BROUGHT TO YOU BY TECH.EU 7
EXAMINING THE IMPACT OF COVID-19 ON THE FINTECH INDUSTRY 8
KEY TAKE-AWAYS 9
CONTENTS 11
EVOLUTION OF FINTECH FUNDING IN EUROPE (2017 - H1 2020) 12
FINTECH FUNDING IN EUROPE SURGES IN 2019 12
NUMBER OF FINTECH FINANCING ROUNDS EVOLUTION 13
GEOGRAPHICAL SPREAD OF FINTECH FINANCING ROUNDS 18
GEOGRAPHIC DISTRIBUTION OF FINTECH FUNDING BASED ON SIZE 19
WHICH EUROPEAN FINTECH COMPANIES ATTRACTING THE MOST FUNDING? 26
A LOOK AT THE INVESTORS IN EUROPEAN FINTECH COMPANIES 31
A LOOK AT ALTERNATIVE FINANCING PLATFORMS 35
A DIVE INTO EUROPEAN FINTECH EXITS 37
METHODOLOGIES AND DISCLAIMERS 44
10 EVOLUTION OF FINTECH FUNDING IN EUROPE (2017 - H1 2020)
FINTECH FUNDING IN EUROPE SURGES IN 2019
In the analysed period for this research, the total fun- In the first half of 2020, around €4 billion was raised ding flowing to European fintech scale-ups added up by European fintech companies, already more than to €4.55 billion in 2017, and this number actually dro- in the full year 2018 but lagging behind on the curve pped to €3.52 billion in 2018. of 2019, when more than €8.8 billion in funding was secured. However, 2019 saw a tremendous increase in finan- cing rounds for European fintech companies, parti- cularly those on the growth and late-stage spectrum, resulting in a surge to €8.81 billion in fintech funding in 2019, a 150% increase compared to the year prior and almost double the number in 2017.
FINTECH INVESTMENTS SIZE IN EUR AND EUROPEAN FUNDING ROUNDS *Up to H1 2020
11 NUMBER OF FINTECH FINANCING ROUNDS: EVOLUTION
The number of funding deals for European fintech Overall, the number of financing rounds for European startups and scale-ups has dropped by more than fintech companies has been quite consistent on an 100, or down 21.7%, from 467 to 366 recorded finan- annual basis, although the first half of 2020 demons- cing transactions from 2017 to 2018. trates a healthy trend (comparable to H1 2019) in the wake of the coronavirus pandemic. In 2019, little changed as the number of fintech fun- ding rounds stagnated compared to the year prior; funding spiked in the second quarter but dropped significantly in the next quarter, thus maintaining an average of 369 funding deals in the last two full years, which translate to roughly one deal per day.
EVOLUTION OF EUROPEAN FINTECH FUNDING ROUNDS (ANNUALLY)
12 EVOLUTION OF EUROPEAN FINTECH FUNDING ROUNDS (HALF-YEARLY)
EVOLUTION OF EUROPEAN FINTECH FUNDING ROUNDS Trendline based on a 2-period rolling mean
13 EVOLUTION OF EUROPEAN FINTECH FUNDING ROUNDS Jumps compared to previous year
EVOLUTION OF EUROPEAN FINTECH FUNDING ROUNDS
14 EVOLUTION OF EUROPEAN FINTECH FUNDING ROUNDS Jumps compared to relevant quarter in previous year
15 This is in line with overall funding numbers for European tech companies, where the trend is equally clear: fewer funding rounds as the years go by, but much bigger in size resulting in record levels in terms of total volume.
Digging deeper into the evolution of the size of fintech financing rounds in Europe, we can see that the me- dian and mean size was equal in 2017 and 2018, but increased significantly in 2019. To wit, the mean funding size more than doubled in the last full year (from roughly €11 million in 2018 to €25.5 million in 2019), while the median funding round size increased from €3 million to €5 million.
AVERAGE SIZE OF EUROPEAN FINTECH FUNDING ROUND (ANNUALLY)
2017 2018 2019
16 GEOGRAPHICAL SPREAD OF FINTECH FINANCING ROUNDS (2017 - 2020)
TOP 20 COUNTRIES RANKED BY NUMBER OF FINTECH FUNDING ROUNDS (2017 - H1 2020) UK drives the market by far
From 2017 to the end of the first half of 2020, the UK firmly took the lead in European fintech based on the number of funding deals for homegrown startups.
Tech.eu tracked around 498 fintech funding deals in the UK during that time period, with Germany and -perhaps surprisingly - Sweden following with a similar number of transactions (172 and 155, respectively). That means that Germany, the number two in the ranking of top fintech countries in Europe based on the number of financing deals, saw slightly under a third of the transactions monitored in the United Kingdom.
France follows as the fourth in the aforementioned ranking, while Spain rounds out the top five with only around 65 deals, or nearly 1/8 of the financing deals in the UK.
17 GEOGRAPHIC DISTRIBUTION OF FINTECH FUNDING BASED ON SIZE
TOP 20 EU COUNTRIES RANKED BY TOTAL FINTECH INVESTMENT SIZE IN EUR (2017 - H1 2020)
When we look at the total of funding flowing to UK-ba- Still including H1 2020, Germany comes in at second sed fintech scale-ups, its lead becomes even clearer. place with nearly €4 billion raised for homegrown fin- Roughly €8.1 billion euros was invested in UK fintech tech scale-ups, which is less than half of the total rai- companies in the last three full years, which is 48% sed by those based in the UK. Germany is followed or almost half of all fintech financing rounds we re- by Sweden and Israel with €1.65 billion and €1.1 bi- corded from 2017 to 2019. llion raised, respectively.
The number for the UK is also about the same France, even though it is one of the fastest-growing amount of total investment flowing to fintech compa- tech ecosystems in Europe, ranks fifth with only nies across Europe in full year 2019. approximately €1 billion raised by fintech companies from 2017 to H1 2020, below 5% of the total for the Adding the numbers for the first half of 2020, we end bloc. up with more than €10 billion invested in UK fintech companies in the analysed timeframe.
18 TOP 5 EU COUNTRIES RANKED BY TOTAL FINTECH INVESTMENT SIZE IN EUR (2017 - H1 2020)
19 France is playing catch-up with the UK and Germany and Sweden (as well as Israel in terms of total investment volume) when it comes to fintech funding deals. Why do you think this is the case, and will the trend continue?
“Over the last years we have observed the I am convinced that France will continue to emergence of innovative and highly ambitious catch up with other strong European FinTech FinTechs in France, Younited Credit, Qonto, ecosystems in terms of funding as it benefits Lunchr and Lydia being good examples. from a large community of experts, a great pool of young talents and more and more growth As they have taken the time to build structural capital, both from France and from internatio- moats, they are now getting into growth stage nal investors who see the strategic value being and some of them are decidedly expanding in- built.” ternationally – therefore the increase in FinTech funding is not a surprise for me.
YANN DU RUSQUEC 1 Eurazeo
The data also shows that 2019 was an outstanding year for fintech funding across Europe, but particularly in its biggest economies.
UK-based fintech companies raised roughly €1.8 billion in 2018, but that number more than doubled to close to €4 billion the following year. In Germany, the total fintech investment volume ballooned from €655 million to €2.3 billion from 2018 to 2019, a 250% increase.
1 Yann Du Rusquec is a Managing Director within the Eurazeo Growth team. From 2007 to 2014, Yann was part of the Eurazeo Capital team being involved in the realization and monitoring of investments such as Europcar or Moncler. In 2014, he launched the Eurazeo Growth activity and made its first investments. He currently sits on the boards of Adjust, Back Content Square, Doctolib, ManoMano, Meero, Payfit, Vestiaire Collective and Younited Credit, and also has invest- ments in Farfetch and PeopleDoc. He is a graduate of École Centrale Paris and holds a DEA MASE Dauphine/ENSAE. 20 TOP 5 EU COUNTRIES RANKED BY TOTAL FINTECH INVESTMENT SIZE IN EUR
Germany went from roughly 560 million euros in fintech funding in 2017 to 2.3 billion euros in 2019, which is roughly 4 times as many. Even though the UK is still ahead in terms of number and total size of fintech funding deals, will Germany continue its fast growth and eventually catch up with the UK?
“I’m convinced Germany will continue its fast We’ve already seen the wave of both B2C and growth as it remains to be the largest economy B2B , and believe that many more are to come. in Europe and has all fundamental factors in It’s impossible to neglect the factor of Brexit. Al- terms of GDP, population, amazing talents co- though, I don’t think that the UK will become ming from all over the world, big global banks abandoned by startups and VCs.” HQs on the ground, and strong venture capital.
MIKE LOBANOV 2 Target Global
2 As a general partner at Target Global, Mike Lobanov is focused on investments in the Fintech and E-commerce spa- ces, as well as overall management of the firm. He also manages the relationships with co-investors who join deals alongside Target Global. Before joining Target Global, Mike worked at one of the largest Russian asset managers, Alfa- Capital, where he was responsible for managing $200+ million in assets for its 15 largest private clients. 21 Based on the number of fintech funding rounds in Europe, the UK is by far the driver with 498 deals vs. 172 in the runner-up country, Germany, and more than €10 billion raised from 2017 to H1 2020.
Why do you think this is the case, and will this trend continue? (How) will Brexit play a role?
“The UK is now well established as the fintech just happening in the capital but is spread right capital of Europe. As this latest report by tech. across the UK. On our latest Fintech 2.0 program- eu shows, the UK is the largest driver of fintech me, 35% of the companies are based outside funding rounds. What’s more, this growth isn’t London.”
GERARD GRECH 3 Tech Nation
“The UK holds a long-standing position as a the last few years. Policies such as promoting global financial centre. Innovation over the last competition in the banking sector, establishing decade has transformed global financial servi- a new payment systems regulator, Project Inno- ces, with the emergence and rapid growth of fi- vate and the Financial Conduct Authority’s re- nancial technology. The UK market’s openness gulatory sandbox have had a real and tangible to innovation and the high rate of FinTech adop- impact in promoting the UK as the best place to tion makes it the ideal place for us to launch start and grow a FinTech business. groundbreaking products and services, and continue to grow our user base. Another key attraction for being based in the UK is the country’s large (multilingual, skilled Britain’s success in growing a leading FinTech and qualified) talent pool. This pipeline helps us hub is due in no small part to the actions taken to recruit the talent we need to keep pace with by successive governments and regulators over our growth plans.”
NICHOLAS TAYLOR 4 Revolut
3 Gerard is the CEO of Tech Nation, which helps UK tech companies connect, learn and scale through growth program- mes and other initiatives.
4 Nicholas is the Public Affairs Manager at Revolut, one of Europe’s largest fintech companies which offers a digital banking alternative that includes a pre-paid debit card, currency exchange, and peer-to-peer payments. Prior to joining Revolut, Nicholas worked in the technology team at Hanover Communications and in the UK Parliament. 22 “The relative ease of immigration, international and financial talent from the city and it has, by culture and English language that the UK offers far, the best equipped regulator to deal with means it is an attractive location for talent from new business models in finance. This will keep around the world. The UK’s systems in terms attracting companies to the UK over its Euro- of starting a business are also more appea- pean counterparts. Added to that, the UK has ling – e.g. hiring, firing, tax systems and the in- availability of capital at all stages and a great frastructure to accommodate the inflow of new connection to the US. Brexit will not impact any workers. The banking system in the UK is such of these aspects, in my view, and London will that it delivers a combination of both technical remain unrivalled by any other European city.”
LAUREL BOWDEN 5 83North
“The UK benefits from being geographically lo- ter, the investors and financiers of NYC in Ca- cated very centrally in the world which is great nary Wharf and the City, and the talent of Silicon for international businesses like ours, it has a Valley coming out of the universities, all within diverse mix of talent, world-renowned higher a 30-minute Underground ride of one another. education institutions (four of the world’s top 10 This isn’t something you find anywhere else in universities are in the UK), forward-thinking re- the world. gulators and a sophisticated and active investor network. We really hope that immigration policy post-Bre- xit doesn’t slow down the influx of excellent glo- The combinations of these factors creates a bal talent into the UK as without this, it will be unique system for fintech businesses to be born increasingly difficult for it to maintain its pole and thrive. In London in particular, you have the position.” policy makers of Washington DC in Westmins-
JOEL PERLMAN 6 OakNorth
5 Laurel Bowden is a partner at global investment firm 83North (previously known as Greylock IL). She has led invest- ments and been on the boards of many multi-billion-dollar European technology companies, including Hybris (acqui- red by SAP), iZettle (acquired by PayPal), Just Eat and Qliktech. Laurel’s current company boards and investments in- clude BlueVine, Celonis, Critizr, Ebury, Lendbuzz, Lenses, Mirakl, MotorK, TIS, Wolt and Workable. Laurel was previously at JVP and GE Capital in London.
6 Joel is the co-founder of OakNorth, a global fintech firm focused on enabling entrepreneurs worldwide to access customised mid-sized loans. Since its inception, OakNorth has secured over $1bn from several investors, including: Clermont Group, Coltrane, EDBI of Singapore, GIC, Indiabulls, NIBC, Toscafund, and SoftBank Vision Fund.
Prior to this, Joel was the co-founder of Copal Amba, a financial research firm which he helped scale to 3,000 emplo- yees and sold to Moody’s Corporation in 2014. Joel began his career at McKinsey & Company and has degrees from the London School of Economics and Georgetown University 23 Germany went from roughly 560 million euros in fintech funding in 2017 to 2.3 billion euros in 2019, which is roughly 4 times as many. Even though the UK is still ahead in terms of number and total size of fintech funding deals, do you think Germany will continue its fast growth and eventually catch up with the UK?
“Given the uncertainty around Brexit, there’s a While London will certainly remain important lot we don’t know when comparing Germany as a fintech hub, it’s safe to assume a positive and the U.K. And yet big banks alone have al- spill-over to other ecosystems, with Germany ready moved over $1 trillion from London to the in general, and Berlin in particular, playing an continent (or Ireland) and Germany has been a even stronger role going forward. We can see top beneficiary. a coming of age for the fintech scene, with in- vestments geared towards market leaders and those who demonstrated scale and leadership in their respective fields.”
TAMAZ GEORGADZE 7 Raisin
7 Dr. Tamaz Georgadze is the co-founder and CEO of Raisin, the leading pan-European savings and investment mar- ketplace connecting retail customers with banks looking to expand or diversify their deposit reach. He is focused on partner bank acquisition, business development, and legal and regional expansion efforts. Prior to building and sca- ling Raisin, Tamaz spent ten years with McKinsey & Co., the last three as a Principal leading McKinsey’s Savings and Investment products service line for EMEA countries. He holds a PhD and honors law degree from the University of Giessen as well as an international economics degree from Tbilisi State University. 24 WHICH EUROPEAN FINTECH COMPANIES ARE ATTRACTING THE MOST FUNDING?
Based on the sheer number of funding rounds raised during the analysed period, Swedish scale-ups Klarna and Lendify lead the pack, with fast-growing UK-based fintech companies like Monzo, OakNorth and Cleo following. Take into account that Klarna raised a $650 million round in September 2020, which was after the analysed period for this report.
TOP 5 EUROPEAN FINTECH SCALE-UPS BY NUMBER OF FINANCING ROUNDS (2017 - H1 2020)
25 TOP EUROPEAN FINTECH SCALE-UPS BY NUMBER OF FINANCING ROUNDS (2017 - H1 2020)
However, Germany enters the picture when we look at total funding size, thanks to Berlin-based neobank N26 - which has raised $670 million in total so far - and the now defunct Wirecard, which reached a post-IPO financing deal with an affiliate of SoftBank to the tune of €900 million in November 2019.
The German fintech scale-up issued convertible bonds with a term of five years exclusively to SoftBank, which would give the investor about 5.6% of Wirecard’s share capital. Of course, at the tail end of the analysis period for this report, Wirecard collapsed following detailed reports of fraud.
The UK, however, reigns supreme here as well when you look at the total ranking - no less than 14 British fintech firms make it to the top 20 European companies based on the total size of investments closed.
26 TOP 20 EUROPEAN FINTECH COMPANIES BY TOTAL FUNDING SIZE (2017 - H1 2020, EUR IN M)
The significant growth in Europe was driven largely by fintech companies raising growth funding (+€15 million rounds) and late-stage financing deals of €100 million or more.
The number of early-stage funding rounds (less than €15 million) effectively decreased during the three full years analysed by Tech.eu, from 332 in 2017 to 265 in 2019, or a decrease of nearly 23%.
While there will likely not be such a strong decrease this year, a look at the rolling mean trendline shows that early-stage fintech funding rounds continue to decline along with growth rounds.
The same trendline shows a continued increase in late-stage fintech financing rounds, which is in line with the general trends for European technology companies.
27 Tech.eu: Sweden is part of the top when it comes to fintech funding in Europe, largely thanks to Klar- na and Lendify, which are the only Swedish companies ranked in the list of top 20 European fintech companies by funding size. Of course there was also the huge iZettle exit. How do you explain their success? Do you think they will remain outliers, or is there something more brewing in the Swedish fintech space?
“Swedish banks & regulators were early adop- Swedish fintech today is hot. Second & third ters, making electronic transfers of wages generation entrepreneurs are coming out of standard in the 1960s, and Swedes got early previous successes like Klarna & iZettle, ad- insights into the opportunities in financial te- dressing huge opportunities unlocked by new chnology. This combined with ambition, inspi- customer behaviour and improving infrastructu- ration and talent from by the broader Swedish re, in particular given Open Banking / PSD2.” tech ecosystem enabled the founders of Klarna & iZettle to identify and build some of the new payments infrastructure of our generation.
HENRIK GRIM 8 Northzone
EVOLUTION OF STAGES OVER TIME Based on number of fintech funding rounds in Europe
8 Henrik is an Investment Manager with Northzone, based in Stockholm, and focuses mainly on companies across consumer and SME spaces, in particular in fintech, digital health and commerce, as well as AI and automation in B2B SaaS. He is involved in Northzone’s investments in NA-KD, Spacemaker, Tier, Klang and Kitab Sawti. Prior to Northzone, Henrik worked in business performance for the mobile games giant King. Before this, Henrik was an Associate at Mc- Kinsey & Company, and holds an M.Sc. in Industrial Engineering and Management from KTH in Stockholm, Sweden. 28 EU COUNTRIES RANKED BY NUMBER OF FINTECH FUNDING ROUNDS BROKEN DOWN BY STAGE (2017 - H1 2020)
EVOLUTION OF STAGES OVER TIME Based on a 2-period rolling mean
29 A LOOK AT THE INVESTORS IN EUROPEAN FINTECH COMPANIES
WHO ARE THEY?
We took a look at the investors that have been most actively investing in European fintech companies in the past three full years, based on the number of financing rounds they have been involved in.
Three of Europe’s largest VC firms make it to the top 20 ranking, Accel and Balderton Capital have not been as active as Index Ventures, which topped the list for fintech funding rounds from 2017 to 2019.
Its portfolio includes successfully exited fintech firms such as Funding Circle, Adyen and iZettle, and fast- growing unicorns such as TransferWise and Revolut.
With 16 ‘round involvements’ in the past three full years, Index Ventures beat specialist fintech investment firm Anthemis Group, which has backed the likes of Atom Bank, Qapital, eToro, Currencycloud and Azimo. Another early-stage investor, Austria-based Speedinvest, rounds out the top three boasting stakes in Inves- dor, Holvi, Tide, WeFox and others.
Notably not present in the list of 2 most active fintech investors in Europe, despite one of the biggest funds and names in the business: Atomico.
MAIN INVESTORS RANKED BY TOTAL ROUNDS OF INVOLVEMENT
30 A different picture emerges when you look at the investors that were involved specifically in rounds raised by fintech scale-ups; that’s when the international investment firms enter, with Insight Venture Partners, the inevitable SoftBank, DST Global and Goldman Sachs rounding out the top 4 in the ranking ahead of Accel.
Also notable is that major financial institutions make their way into the ranking, including BBVA, Allianz, Ba- loise Group and Bain Capital.
INVESTORS INVOLVED IN SCALE-UP ROUNDS RANKED BY NUMBER OF ROUNDS INVOLVED
Index Ventures has emerged on top of the list when it comes to the number of involvements in Euro- pean fintech startup financing rounds, ahead of vertically-focused investors such as Anthemis. Why are you so bullish on fintech as an industry? And what are the future trends in your view?
“The opportunity in financial services is not just and zero-fee approach will transform our rela- to create better banks, better payments or better tionship with those products. We expect this will insurance, but to transform one of the largest eventually result in more economic activity. sectors of the economy. Innovation in fintech will lead to more people and businesses gai- ning access to agile and transparent products
JAN HAMMER 9 Index Ventures
9 One of Index Ventures’ leading fintech investors, Jan Hammer’s focus is on venture and growth-stage investments across a number of technology sub-sectors, with a particular interest in Financial Services and Information Services across all stages from seed on. He currently works with a range of companies including Adyen, Robinhood, TransferWi- se, Collibra, SafetyCulture, Capitolis and Alan. 31 WHERE ARE THEY?
It’s clear that British and American investment firms were the most active backers of European fintech compa- nies, with 14 rounds shared between them (compared to 3 each for their French and German counterparts) from 2017 until the end of 2019.
MAIN INVESTORS’ COUNTRIES RANKED BY TOTAL ROUNDS OF INVOLVEMENT
32 While the UK pulls slightly ahead of the US, the roles are reversed when we look at the total number of invol- vements in rounds for fintech scale-ups, specifically, where the US takes a clear lead.
COUNTRIES OF INVESTORS IN EUROPEAN FINTECH SCALE-UPS RANKED BY TOTAL NUMBER OF ROUNDS
33 A LOOK AT ALTERNATIVE FINANCING PLATFORMS
Technology startups worldwide increasingly have access to alternatives to institutional venture capital or pri- vacy equity for financing their businesses.
These range from revenue-based financing players such as Berlin-based Uplift1 and London-based Unca- pped, debt/convertible note funding, raising money from family and friends, various types of crowdfunding platforms such as Seedrs and Crowdcube, ICOs, angel investors and syndicates, invoice trading platforms such as MarketInvoice, Investly and Accelerated Payments, traditional bank loans, grants and/or subsidies, etc.
But consumers also increasingly benefit from access to alternative financing channels that have emerged outside of the traditional finance system such as regulated banks and capital markets - which is in vogue now due to the global coronavirus pandemic and the accompanying cash crunch.
One example is digital lending platforms, which offer consumers convenient and quick loans to bridge a gap, pay a bill or make a purchase.
Take 4finance for example. The company, which boasts group offices in Riga (Latvia), London, Luxembourg and Miami, offers deposits and other banking products through its TBI Bank subsidiary, an EU-licensed insti- tution with operations in Bulgaria and Romania.
More importantly, as one of Europe’s largest online and mobile consumer lending groups with more than €8 billion in loans provided to date, 4finance offers a range of products and brands that help consumers secure instalment or single-payment loans, credit lines and/or near-prime loans.
Founded in 2008, 4finance pointed out to Tech.eu that it has been weathering the COVID-19 storm thanks to its operational resilience. The company managed to react proactively to the crisis by moving over 2,000 staff across 16 countries to work from home, in order to provide continuous service to its customers and adapt its products to a suddenly changed landscape. By cutting costs and reducing marketing spend, 4finance has managed to maintain its strong position in the European consumer lending field, as demand and online loan issuance have returned to normal levels after the initial Covid-19 shock.
It’s worth noting that there are multiple players on this expanding market, who all echo this sentiment of en- couraging business growth in challenging times.
One example is Ferratum, a pioneer in digital banking born from Nordic fintech roots and growing into a global financial services provider with operations in 20 countries at present.
Headquartered in Helsinki, Finland, Ferratum was founded in May 2005 and has expanded its operations across Europe, North America, South America, Africa, Asia and Australia. As a long-time digital lender, Ferra- tum has approx. 560,000 active customers and offers a comprehensive product portfolio to retail customers,
34 who are able to apply for consumer credit in amounts varying between €25 and €20,000 and small busines- ses installment loans up to €350,000 with a term of 6 to 24 months.
Listed on the Prime Standard of the Frankfurt Stock Exchange, on 16 November Ferratum report that its revenue for the 9 first months of 2020 was down by -19% as a direct result of the COVID-19 pandemic, but that the decision to streamline the company’s operations by suspending lending in selected markets has led to positive EBIT.
Also in this case, Ferratum’s management expect impairments to increase in Q4 2020 compared to the levels in Q2 and Q3 2020 as the company is increasing lending volumes.
On top of 4finance and Ferratum, there’s another Nordic contender in this space called IPF Digital (part of the International Personal Finance Group, and also Poland’s Creamfinance, Germany-based providers such as Spotcap and Raisin, and Spain-based ID Finance, among others.
However,it should be noted that the bulk of consumer lenders in Europe and beyond effectively operate peer- to-peer (P2P) lending platforms.
For reference: established European players in the P2P consumer lending field include the likes of Zopa, RateSetter, LendInvest and Funding Circle (UK), Twino and Mintos (Latvia), Auxmoney and Smava (Ger- many), October (France), Bondora (Estonia), Lendify and Toborrow (Sweden), Colectual (Spain), Mozzeno (Belgium), Fixura (Finland), and plenty more.
In the UK, there’s been the notable emergence of Lendable, a consumer lender that’s been flying under the radar but has made waves as a British fintech startup that’s actually turning a profit.
Time will tell how these consumer and business lending platforms, and alternative financing providers in general, manage to adapt to the new reality, which is still taking shape in the midst of the COVID-19 crisis.
35 A DIVE INTO EUROPEAN FINTECH EXITS
Europe’s fintech scale-ups are raising bigger funding rounds as ever before, allowing them to stay private and independent longer, a trend that we have also observed and analysed across all sectors continent-wide.
As a result, the number of exits (meaning initial public offerings or IPOs, mergers and acquisitions) is not increasing in any significant way, despite high-profile transactions such as Adyen’s 2018 IPO and the acqui- sition of iZettle by PayPal in the same year.
For the researched time frame, we note a slowdown in acquisition activity; even though there were more ac- quisition deals in European fintech in 2019 than in 2018, there’s been a 28.5% drop from 67 to 48 compared to 2017.
EXITS THROUGH TIME
36 EXITS THROUGH TIME
The picture becomes even clearer when you look at the size of the exits in the researched time frame; in par- ticular acquisitions, which decreased from €13.5 billion in total to nearly €3 billion from 2017 to 2019.
37 EXITS THROUGH TIME VALUE
From 2017 to 2019, acquisitions have taken the lion’s share of exits in the European fintech space, with 87%. Even though there have been notable IPOs such as Adyen and Funding Circle, they make up a small part (5.6%) of the overall exits.
The biggest acquisition in the last three full calendar years took place in March 2019, when Fidelity National Information Services (FIS) agreed to buy Worldpay, the UK’s leading processor of payments, in a $43 billion deal.
38 OVERALL EXIT TYPE SHARES
39 EXITS SIZE THROUGH TIME
The largest acquisition in the European fintech industry involved a UK-based company, but the UK also saw the highest number of fintech exits in the researched timeframe.
From 2017 to 2019, Tech.eu monitored 41 deals (mostly acquisitions), followed by Germany and Sweden with 28 and 22 exits, respectively.
In France, there were only 6 exits in three full years, on par with Denmark and behind Switzerland.
40 HQ COUNTRIES RANKING BROKEN DOWN BY EXIT TYPE
41 In nearly every EU country monitored by Tech.eu, the majority of exits were acquisitions, but in The Nether- lands there was a major IPO (Adyen) that heavily skewed the stats when it went public on Euronext Amster- dam at a €7.1 billion valuation.
In September 2017, a consortium led by US buyout firm Hellman & Friedman agreed to acquire Danish pay- ment processor Nets for about $5.3 billion.
AMOUNT SHARES BROKEN DOWN BY EXIT TYPE FOR EACH HQ COUNTRY
42 METHODOLOGIES & DISCLAIMERS
DATA COLLECTION PROCEDURE
From November 2013 until present day, Tech.eu has around the date the transaction was first announced continuously monitored over 200 sources of news or reported; we cannot guarantee, however, that the and information across multiple European regions converted amount exactly mirrors the price at the and languages, to build an extensive database of time of the closing of an agreement (mainly because tech funding, M&A and IPO activity. that date is rarely shared).
All of the late-stage financing transactions and exits We have opted to include non-European Union mem- have been analyzed by the Tech.eu team for the pur- ber states such as Israel, Norway, Switzerland and pose of this report, along with additional transactions others in this analysis when available, as we consi- that were not reported by any of the aforementioned der them to be an integral part of the European tech- sources but flagged by people from our collective ne- nology industry as such. This is in line with Tech.eu’s tworks. overall editorial policy.
In a limited number of cases, the deal size was not Considering the vastness, fragmentation, and bread- disclosed, but we’ve included estimates for any tran- th of the different languages that define Europe, it is saction reported by a publication that we consider always possible that some transactions are not inclu- reliable and trustworthy. ded in our analysis. It is important to remember, that as these are often deals made by private companies, When a deal size was disclosed, but in a currency not all are disclosed. different from the euro, we converted the amounts
DATA ANALYSIS METHODOLOGY
For the purpose of this report, Tech.eu collected, ve- We looked at exits (M&A + IPO) to draw conclusions tted and subsequently analysed any disclosed fun- on this aspect in relation to the recent surge of finan- ding round and exit for a European or Israeli fintech cing flowing to European fintech companies. company, as recorded in the period Q1 2017 until H1 2020. On top of the data, we interviewed a number of founders and executives from European fintech sca- For our research, we looked at the number of rounds; le-ups, and relevant pundits, in order to add qualita- the total, mean and median size of the investments tive information and anecdotal insights to the report. and the geographies of the relevant companies and their investors, as monitored from 2017 to H1 2020.
43 AUTHOR AND ACKNOWLEDGMENTS
This report was written by Robin Wauters, the foun- contributed to this report directly or indirectly, in parti- ding editor of Tech.eu and a technology journalist cular the scale-up founders, executives and investors and researcher specialised in Europe’s startup and who were kind enough to spend time on adding their scale-up ecosystem(s). In addition, he is the co-foun- qualitative insights. der of BeCentral, a digital campus located in Brus- sels Central Station where people can come to learn Special thanks to data journalist Kelly Kiki for the new technologies, grow a startup and impact society. number crunching, the Tech.eu team and COO He- len Walsh for enabling and facilitating the creation of An active supporter of technology entrepreneurship this report. in Europe, Robin also consults with governments both at the EU and national level on ways to help Finally, thank you to the Finstar team for their support improve the conditions of their startup ecosystem(s), and active involvement in the creation and distribu- and frequently speaks at events worldwide about this tion of this report, and Ana Carrasco for the design topic. work.
Robin would like to sincerely thank all of the entre- preneurs, investors and community leaders that have
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