Broken piggy bank

US Fintech Startups Suffered a 36% Funding Collapse in 2023

The US fintech startup ecosystem is struggling to attract funding and has suffered a major collapse in investments due to increased interest rates, geopolitical issues, and other macroeconomic conditions that have suppressed the investment climate in recent years, according to a new report by Tracxn.

Overall, fintech companies in the United States attracted $18.2 billion in funding in 2023 — a major 36% drop from the $28.5 billion raised in 2022 and an outright collapse of 68% compared with $56.3 billion raised in 2021.

In terms of volume, according to Tracxn’s “Geo Annual Report: US FinTech 2023,” there were just 899 funding rounds observed in 2023 versus the 1,467 rounds witnessed in 2022.

Seed State and Unicorns Continue to Suffer

Seed-stage investments were among the hardest hit — plummeting by 59% year-over-year from $3.2 billion in 2022 to a mere $1.3 billion in 2023 — while large investments collapsed as well. In 2022, there were 70 recorded funding rounds of $100 million or more in the sector, but only 19 were seen in 2023.

As would naturally follow, there were very few new “unicorns” born last year — just four compared to 29 firms that crossed the $1 billion valuation mark in 2022. Kin, SageSure, Lendbuzz, and Vestwell were the four that managed to hit the mark despite the trying conditions in the market.

Fintech Sectors that Outperformed the Market

Despite the bad news overall, there were a few bright spots. Specifically, the sub-sectors of payments did quite well, raising $8.45 billion in 2023 — a sharp spike of 208% compared with $2.74 billion raised in the previous year.

No other sub-sectors faired well, with the other “best-performers” of the year being investment tech (down 56% on the year) and finance and accounting tech (down 50% in 2023).

Where Funding Could Be Found

Among US cities, San Francisco dominated the funding landscape, raising $9.2 billion in the year and accounting for a full 50% of the funds raised by fintech companies in the country. Fintech startups in New York City and Palo Alto raised $2.3 billion and $562 million, respectively.

As for the organization doing the funding, familiar faces Y Combinator, Techstars, and a16z were the overall top investorsin the US fintech market.

Specifically, Y Combinator, a16z, and Spartan Group were the top seed-stage investors in 2023, while Commerce Ventures, Khosla Ventures, and General Catalyst were the top early-stage investors in 2023. Geodesic Capital, Capital IG, and Bond Capital were the top late-stage investors in 2023.

Related Posts

Photo: Horatio's office in Bogotá, Colombia. (Credit: Horatio)
Horatio Client Summit Takeaways: BPO Sees More Potential for Customer Service in Latin America
Illustration of a man with his pockets turned out dreaming of money.
US FinTech Startup Funding Saw a Precipitous Fall in the Third Quarter
Ben Yurcisin Co-founder, Generative Ventures Events
Summer Generative AI Events Coming To New York, Dallas, London

Leave a Reply

Cognitive Business News