Perhaps the hottest area in venture capital and private equity is financial technology (Fintech). Private equity data provider Pitchbook is out with their take on the state of fintech. Here’s a look.

A Timeline

Before looking into more detail on the state of fintech, here’s a timeline of events we saw in the first quarter of this year.

  • January 7th: PayPal confirms they are developing a stablecoin known as “PayPal Coin”. The code was found within its iPhone app. PayPal’s confirmation follows other major corporations, such as Visa, in developing stablecoin.
  • January 22nd: The Diem project – originally known as Facebook’s Lira project – sold its technology assets to Silvergate for around $200 million.
  • January 31st: FTX brings in $400 million in a Series C funding found at a whopping $32 billion post-money valuation. As constant observers well know, crypto companies’ valuations continue to skyrocket.
  • March 9th: President Biden calls for researching and supporting digital assets, including further research on a U.S. central bank digital currency. Over 90 countries are evaluating or piloting similar projects.
  • March 21st: The SEC proposes rules that would require public companies to report carbon emissions and the climate impact of their businesses.
  • March 22nd: Forge Global, a marketplace for exchanging of private company shares, finishes a deSPAC deal, making it one of the largest VC exits during the first quarter.

Some Numbers on the State of Venture Capital

Released in the report was Pitchbook’s take on the first quarter numbers. Overall, they reported 1,233 total deals, quarter-over-quarter decline of 3.7%, year-over-year decline of 6.5%, and year-to-date growth of 39.9%.

Switching to deal value, Pitchbook found $29.3 billion in total deal value, a quarter-over-quarter decline of 7.3%, a year-over-year growth of 13.8%, and a year-to-date growth of 113%.

Times, they are not too bad.

Source: Pitchbook

Fintech Venture Capital Deal Activity

Shifting to the state of VC deal activity, judging solely by the performance of deal activity through the first three months of this year, it’s unlikely that the 2021 performance will be matched. Last year, we saw 5,236 fintech deals, a massive jump from 2020’s 3,278. As mentioned, so far through the first three months, fintech has seen 1,233. If the first quarter trend holds, 2022 will mark the second-best year of fintech deal activity ever in terms of both deal counts and deal value. Deal value reached $29.3 billion through the first quarter of this year, while total deal value in 2021 reached an astonishing $122 billion.

Source: Pitchbook

Summing Up

Overall, deal activity in the fintech world is healthy, very healthy, although nowhere near the 2021 heyday trends. If the current trends continue, 2022 will be another strong fintech investing year – the second-best ever.

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The world is in a state of flux, and the venture capital world is no different. Here’s a look at five charts put out by private equity data provider Pitchbook on the state of the venture capital industry through the fist quarter of 2022. Quite interesting, with some surprising.

Venture Capital Investing in the First Quarter of 2022

In a perhaps surprising figure, first quarter venture capital (VC) investment came to $71 billion. This was down by $24 billion from the fourth quarter of 2020 and about $6 billion lower on a year-over-year basis. Surprisingly, although dollars flowing to the VC industry is lower, the deal count reached another high in the first quarter, reaching 4,822. This was well above the 4,098 in the fourth quarter of 2021.

Why are the new figures surprising? Well, in recent years the average dollar amount of VC investment activity had been trending upwards, but with the rising number of deals and lower dollar flows, the average deal size is slowing down. Perhaps this is a good sign for investors but should make some observers a little nervous.

Source: Pitchbook

First-time Financings

The second view – first-time financings – paints a very healthy picture. Through the first quarter, first-time financings reached $7.0 billion, which, when annualized, would reach the highest on record.

What does this figure mean? On a broader picture, it says that investors are still high on VC investment, but they’re investing smaller amounts, on average, per deal. Interesting!

Source: Pitchbook

Public Listing Activity Slows

The public markets went through a rough time in the first quarter of 2022. Given the volatile water, it’s likely no surprise that public listing activity saw significant pullback. Overall, acquisition activity came in at 224 deals, public listings saw 28 deals, and buyouts saw 58 deals. If one annualizes these figures, the picture pained equates to a slow 2022 year for public listing activity. Again, not surprising on this conclusion.

Source: Pitchbook

Momentum for VC Investing is Still High

If one is an economic pessimist for the 2022 year, the following picture is not confirming of that view. Overall, through the first three months of 2022, VC fundraising activity continues to exhibit strong momentum. Through the first quarter, capital raised reached almost $74 billion and the fund count reached 199. If these figures continue through the remainder of the year, capital raised will far surpass anything we’ve seen – ever. Interestingly, if the fund count trend continues, the number of funds will surpass all other years except 2020 and 2021, which saw 801 and 858 deals, respectively.

Source: Pitchbook

The Traditional Clusters Continue to Dominate

The last picture shown here is the percentage of all deal value by selected metropolitan areas. Unsurprisingly, the San Jose-San Francisco-Oakland, California area continues to dominate, capturing a whopping 40% of all VC money. Far behind in second place was New York-Newark, NY-NJ-CT-PA at 14%. One might have expected these two behemoths to see some slowdown given the move towards remote work, left leaning political policies, and other factors, but no, times are still good in these two very broad areas.

Source: Pitchbook

Summing Up

Overall, the state of VC through the first quarter of 2022 is quite healthy, at least according to data provided by Pitchbook. If things continue throughout the remainder of the year, 2022 could turn out, surprisingly, to be a banner year.

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With the IPO market icy, Pitchbook recently released an interesting take on the SPAC (special purpose acquisition companies) world – what they call DeSPAC). Here’s a review.

Pitchbook DeSPAC Index vs S&P 500

The first view released by Pitchbook on recently public companies follows below. Interestingly, although probably not surprising for follows of the sector, the S&P 500 has far surpassed the performance of DeSPAC companies since 2018. Overall, over this period the S&P 500 is up about 1.4x, while the DeSPAC is down by about 0.6x.

Source: Pitchbook

On a year-to-date basis (YTD), the picture also looks brighter for the S&P 500. Overall, the S&P 500 is down a little, while the DeSPAC is down about 0.7x.

Source: Pitchbook

SPAC IPO Activity

With this picture in mind, the following figure, which shows SPAC IPO activity, paints a picture of relatively low activity through in the first quarter of 2022 at just around 75 deals and aggregate post-money valuations of around $20 billion. This is a sharp drop from the first of 2021 peak, which saw deal counts reach more than 300 and aggregate post-money valuations soar to a whopping $110 billion. Times change!

Source: Pitchbook

The Median and Average SPAC IPO Size

The next view Pitchbook released was that of the median and average SPAC IPO size from 2018 through the first quarter of 2022. Overall, deal values continued to rise from 2018 through 2020, slowed slightly in 2021, and then exhibited further weakness in the first quarter of 2022. As of writing, Pitchbook had the median IPO size at $100 million and the average deal size at $126.5 million.

Source: Pitchbook

Completed SPAC Activity by Quarter

The next view is of completed SPAC acquisition activity by quarter. Overall, activity picked up significantly beginning in the fourth quarter of 2020, and peaked in the third quarter of 2021 at around 90 deals with aggregate exit values of around $100 billion. The most recent estimate for the first quarter of 2022 has deal counts down to 30 and aggregate exit size of around $20 billion.

Source: Pitchbook

A Couple Final Views

The final two charts provide an interesting view of the SPAC area by PIPE participation. Overall, deals with PIPEs are still elevated relative to the early years of reporting in 2019. As of writing, around half of all SPAC acquisitions involved PIPE deals. This is down from the 2020 third quarter peak of around 90%, but still higher than the 2019 and 2020 figures.

Lastly, the median and average SPACE PIPE deal size is down significantly in the first quarter of 2022, to $100 million (median) and $156.7 million (average). The figures stood at $192.5 million (median) and $329.0 million at the end of 2021.

Source: Pitchbook

Summing Up

Overall, the past few years have been wild rides for SPAC investors. Based upon continued investor interest, we may be up for some more wild rides in the years ahead.

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