The US fintech startup ecosystem witnessed its peak funding in 2021 and has since experienced a rapid decline, with the most recent quarter showing more troubling signs for companies in search of financing.
While Q2 2023 witnessed an uptick in funding, the sector is now seeing a similar downward trend, with September being least funded month in Q3 2023 and the second-lowest funded month in 2023 after February, according to the “Geo Quarterly Report: FinTech US – Q3 2023” from SaaS-based market intelligence platform Tracxn.
This decline in funding can be attributed to the global economic slowdown, increasing interest rates and the after-effects of the banking crisis among others, making it difficult for investors to make investment decisions.
The US fintech startup ecosystem witnessed total funding of $2.7 billion in Q3 2023, a 74% decline compared with $10.2 billion raised in Q2 2023 and a 51% decline from $5.5 billion in Q3 2022.
This drop in funding is largely due to the decline in late-stage investments. Late-stage funding stood at $1.3 billion in Q3 2023, an 84% decline compared with $8.1 billion raised in the previous quarter (Q2 2023) and a decline of 34% compared with $2.1 billion raised in the corresponding quarter last year (Q3
Early-stage funding worth $1.2 billion was observed in Q3 2023, a drop of 37% compared with $1.9 billion raised in Q2 2023, and also a drop of 56% compared to $2.75 billion in Q3 2022. This sector secured seed-stage funding worth $187 million in Q3 2023, a 37% drop compared with $297 million raised in Q2 2023 and a similar drop compared with $632 million raised in Q3 2022.
Only one new Unicorn emerged in the third quarter of 2023, similar to Q2 2023. Further, seven companies raised $100M+ funding rounds, out of which one raised $300 million.
No IPOs from this space were witnessed in Q3 2023, similar to the corresponding quarter last year, but a dip from one IPO in the previous quarter. However, 45 acquisitions took place, a dip from 46 in Q2 2023 and a sharp contrast from 71 in Q3 2022.
Among the cities, San Francisco took the lead in terms of funding, followed by Boston and Miami. Fintech companies based in San Francisco raised $586 million in Q3 2023, while those headquartered in Boston and Miami raised $356 million and $326 million, respectively.
Y Combinator, Techstars and Andreessen Horowitz are the overall most active investors in the US fintech space. Plug and Play Tech Center, Better Tomorrow Ventures and Techstars were the top investors in the seed stage in the third quarter of this year, while Commerce Ventures and General Catalyst were the top early-stage investors. Geodesic Capital, PSG and LUN Partners Group were the top investors in the late-stage rounds.