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The lost fintech generation

Feb 6, 2024
Illustration of an old-fashioned personal computer made of marble with a screen reading "R.I.P."

Illustration: Sarah Grillo/Axios

Just 31% of fintech companies that raised Series A funding in 2021 have garnered enough investor interest to raise a Series B, F-Prime Capital's 2024 State of Fintech report estimates.

Why it matters: The curse of high expectations (and valuations) has created a lost generation of fintech startups struggling to raise capital or find an exit.

By the numbers: F-Prime reports that 819 fintech companies raised about $15 billion worth of Series A funding in 2021.

  • Most have not raised a Series B, the typical signal that a company has hit significant revenue and "product market fit."
  • Among that majority, F-Prime's report notes that 11% went on to raise bridge rounds, another 14% shut down, 1% were acquired, and another 43% had not yet announced any Series B funding 24 months or more after their Series A.

Of note: Though not perfectly apples to apples, CBInsights data on companies from 2008 to 2018 found that 64% of companies that had raised a second round of funding (corresponding usually to a Series A) raised a subsequent round (corresponding with a Series B).

  • Those fundings happened at a median of 18 months after the Series A.

Zoom out: Investors are expecting M&A to pick up, though smaller acquisitions are more likely than bigger ones. Companies are focusing on acquihires, says F-Prime principal Rocio Wu.

  • Public fintech companies spent about $46 billion in 2021 to buy other businesses in the space, with Square's $29 billion Afterpay acquisition driving that figure. But that number fell to $3 billion in 2023, per F-Prime.

💭 Thought bubble: Series B rounds are infamously difficult to raise. It's only become more challenging as investors have changed their minds about what kinds of fintech business models deserve funding.

  • In a flip that began in mid-2020, B2B models are in; consumer-focused on-balance-sheet lending and interchange are out.

Editor's note: This story has been corrected to state that public fintech M&A was $3 billion in 2023, not $1 billion.

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