Canadian fintech investment dips in 2022 after banner 2021
Investment in Canada’s financial technology (fintech) industry fell 81.4% to US$1.3 billion in 2022 from a record high of US$7 billion in 2021, according to data from Pitchbook compiled for KPMG Canada. Investments include deals in venture capital, private equity, and mergers and acquisitions.
Deal volume, meanwhile, retreated 22.1% to 169 transactions, down from 217 in 2021.
Deal making especially slowed in the fourth quarter, with just 27 deals worth US$154.8 million, down from 52 deals worth US$956 million in Q4 2021.
There were no fintech IPOs in Canada in 2022.
"It's not surprising to see a decline given the market rout, and the fact that fintech investments hit such feverish heights in 2021. But to put things into perspective: last year's activity was still stronger than 2020, and we also saw the second highest number of deals ever, so clearly investors were still finding many attractively priced opportunities," said Geoff Rush, financial services industry leader at KPMG Canada.
The slump in Canadian and global markets pushed down valuations in 2022, a trend that KPMG expects to continue this year. The Big Four accounting and consulting firm expects deal volume to remain subdued this year, with a slight pickup in the fourth quarter.
But the fintech space is also undergoing a mentality shift of sorts, according to Georges Pigeon, a partner in KPMG’s deals advisory practice.
“In 2021, many companies saw a huge influx of capital from VC investors, so some of those firms won't need cash until sometime in 2023 – maybe even 2024 – because they've streamlined and restructured their operations to make that cash last longer,” Pigeon said. “So instead of a 'growth at any cost' mentality, many fintechs are now focusing on sensible growth while preserving the cash they have on hand for as long as they can with an eye to achieving sustainable profitability in a not-too-distant future.”
The case of Affirm, a leading buy-now, pay-later fintech firm, is illustrative of the ebb and flow of the industry. The US company snapped up Canadian startup PayBright in December 2020 on the way to a US$117.00 initial public offering in January 2021. Shares reached an apex of US$164.23 in November 2021 as the pandemic and low interest rates drove demand for its services – especially as consumers snapped up big ticket appliances and furnishings with an eye to paying later.
Interest rate hikes and a retreat in consumer confidence amid spiralling inflation sent Affirm’s fortunes crashing downward. The firm also had to contend with the ramifications of the same pandemic over-hiring exhibited by various other technology companies.
Affirm shares dipped to a low of approximately US$9 by January 2023. In February the company announced it was cutting 19% of its staff, or approximately 500 employees.
Founder and CEO Max Levchin last week told shareholders the company “consciously hired ahead of the revenue required to support the size of the team.” Levchin said Affirm expects to keep the headcount “essentially flat for the foreseeable future.”
