| SAN FRANCISCO, April 26
SAN FRANCISCO, April 26 Venture capital
investments in financial services startups are showing a
geographical split, with funding for so-called "fintech"
companies in the United States cooling but soaring in Europe,
according to a new report out Wednesday.
Years of hype that led to high valuations, concerns over
high loan losses among online lenders and industry scandals such
as Lending Club Corp falsifying loan documentation
, has resulted in a slowdown for the U.S. fintech
market, say investors. Meanwhile, younger markets with a less
complex regulatory regime and fewer failed startups to deter
investors are attracting more dollars.
"Europe didn't experience the euphoric run-up and also
didn't get the whiplash when things turned tough," said Charles
Moldow, a fintech investor and general partner at Foundation
Fintech is a diverse industry that includes startups using
new technology to facilitate online lending, payments, money
transfers, insurance and stock trading. In recent years, it has
attracted investor attention for its potential to upend
traditional financial systems.
In the first quarter this year, venture-backed fintech
companies in the U.S. raised $1.1 billion, an 8 percent drop
from the previous quarter and down 39 percent from the same
period a year ago, according to a new report from venture
capital database CB Insights.
U.S. fintech startups closed a total of 90 financing deals,
down 9 percent from the previous quarter, and the median deal
size in dollars also fell.
Meanwhile, investments during the first quarter in European
venture-backed fintech companies jumped to $667 million, a 250
percent increase over the previous quarter and 133 percent climb
from a year ago.
The number of fintech deals in Europe spiked 74 percent from
the previous quarter to 73, and the average deal size ticked up.
A confluence of trends - including the rise of digital
banks, regulations that encourage startups to experiment with
new financial products and the popularity of online payments -
has positioned Europe for a fintech boom, said Matthew Wong,
senior analyst for CB Insights.
The fintech pullback in the United States is also part of a
broader startup investment slowdown, as venture capitalists rein
in spending following a frenzy in 2014 and 2015 that drove up
Still, for the hottest U.S. companies, there was no problem
raising cash. SoFi, which offers various loan and refinancing
plans, raised $500 million at a $4.5 billion valuation.
"Outside of that, we didn't see as much enthusiasm for
larger-scale financing in the U.S.," Wong said.
(Reporting by Heather Somerville; Editing by Richard Pullin)