Investment in Canadian fintech companies dropped three-fold in the first half of 2023 as valuations continued to slide to levels not seen since the beginning of the COVID-19 pandemic, driven primarily by macroeconomic concerns, according to KPMG in Canada.
In the first six months of 2023, investment (including venture capital, private equity and merger and acquisition activity) totalled USD $353.7 million across 57 deals.
That’s down from the USD $1.09 billion invested across 87 deals in the second half of 2022, and USD $834.1 million invested across 109 deals in the first half of 2022, according to data compiled by PitchBook for KPMG in Canada.
The first half of 2023 was one of the weakest for valuations since the first half of 2020, when the COVID-19 pandemic rattled global markets and the economy. Geoff Rush, partner and national industry leader for financial services at KPMG in Canada, says it’s the continuation of a downward trend that began to unfold last year.
“Investors are still quite concerned about the state of the global economy, with fears of a recession, elevated inflation and interest rates continuing to put a significant strain on valuations, and that’s causing them to pause and reflect on their current investments and strategies,” says Rush.
“Geopolitical concerns and the failure of several banks in recent months are also playing into investors’ decisions. On the latter, the fact that that some loan portfolios and investment teams have been acquired by financial institutions recently illustrates that there are still opportunities in fintech,” he notes.
In the first quarter, investment in Canadian fintech totalled USD $297.3 million across 30 deals, but it fell more than five-fold to USD $56.5 million across 27 deals in the second quarter. In fact, Q2 was one of the weakest quarters for Canadian fintech valuations since the third quarter of 2016.
Rush says the downward trend will likely play out for the rest of the year.
“While investment will continue to be weak in the second half, we will likely see pockets of activity in areas like blockchain, artificial intelligence and machine learning. There are a lot of financial services companies that rely significantly on technology and are looking to adopt more emerging technologies such as generative AI, so that should bode well for the fintech space in the near to long-term,” he adds.