Can fintech start-up funding rebound from a lean year?

The amount of venture capital invested in Swiss fintech start-ups took a tumble last year, just as they were talking up their potential to provide pandemic solutions. The fintech sector is doing its best to chalk this up as a temporary blip, so what are the prospects for 2021?

There have already been some notable fintech investments in the first couple of months of 2021. WealthArc and Selma Finance attracted CHF4 million and CHF3.5 million respectively. Abacus Research is investing “several million” francs into neo bank Yapeal.

But this has been trumped by a double-digit million US dollar sum (exact figure not revealed) into Sygnum bank from Japan’s SBI Digital Assets Holding (which entered into a strategic partnership with Sygnum last year). Sygnum says this latest cash injection brings the total capital raised in the last six months to $30 million.

It’s early days yet, but what’s missing are the mega-rounds of CHF100 million+ (also absent for the entirety of 2020 in the fintech sector). The CHF2 billion takeover of Swiss financial software provider Avaloq by Japan’s NEC group last October counts as a change of ownership rather than new funding, but at least it demonstrated that Swiss fintech can be highly valued.

According to the Swiss Venture Capital Report by Startupticker, VC funding of fintechs fell to CHF220 million last year from CHF360 million in 2019. Unsurprisingly in the midst of a pandemic, most of the big spending was directed at biotech companies.

It might be that some fintech companies are now more able to generate growth capital by themselves. The industry association Swiss Fintech has recently conducted a health check survey of its members. The likes of Loanboox, Altoo and Payrexx spoke of significant increases in customer numbers and revenues in the last year. And they are not alone in achieving greater market penetration. The early indications of the Swiss Fintech survey point to more companies hiring staff than at this time last year.

It’s noteworthy that some of the largest fintech VC deals last year were in the field of blockchain and cryptocurrencies – a sign that this sub-sector is starting to reach maturity. Bitcoin Suisse (CHF45 million), SEBA bank (CHF20 million), Metaco (CHF16 million), Crypto Finance (CHF14 million), Taurus (double digit million) and Sygnum (see above) led the field. Crypto company Lykke and one other start-up (that doesn’t want to be named!) are currently each seeking CHF15 million to set up digital assets trading platforms in Switzerland.

A few companies have already created digital-only shares and Switzerland is upgrading its legislation this year to codify the new asset class. The missing piece of the jigsaw is a marketplace in which to trade digital assets over distributed ledger technology (DLT). That’s also set to change this year. There was a time when crypto start-ups were able to raise multiple millions at breakneck speed. These days investors want a bit more for their bucks than “to the moon” promises and dreams of utopia. They want equity, a share of profits and voting rights – a call that has been heeded.

It’s perfectly conceivable that start-ups will soon have the choice between asking VCs for funding or raising cash on the public markets more efficiently than in the past.