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Despite unicorn births, U.S. fintech funding fell 36% in 2023

In 2023, the US FinTech startup ecosystem, ranking as the highest-funded globally, experienced a decline in funding compared to the previous year.

Economic factors like inflation, increased interest rates, geopolitical issues, and broader macroeconomic conditions led to a slowdown across industries, posing challenges for the investment market.

The Tracxn Geo Annual Report: US FinTech 2023 adds that despite these challenges, US FinTech companies secured $18.2 billion in funding in 2023, marking a 36% decrease from the $28.5 billion raised in 2022 and a substantial 68% drop from the $56.3 billion raised in 2021. The year witnessed 899 funding rounds, a 39% decrease from the 1467 rounds in 2022.

Examining stage-wise funding, late-stage funding was the least affected, totaling $11 billion in 2023, an 18% decrease from $13.4 billion in 2022. Seed-stage investments fell by 59% from $3.2 billion to $1.3 billion, and early-stage funding saw a 51% drop from $11.8 billion in 2022 to $5.8 billion in 2023.

H1 2023 saw a 42% increase in funding to $13.2 billion compared to H2 2022, while H2 2023 experienced a 62% decrease to $5 billion.

The first quarter of 2023 stood out as the highest-funded period, with US FinTech startups securing $9.5 billion, representing over 50% of the total funding in 2023. Q4 2023, in contrast, was the lowest-funded quarter with $2 billion.

The number of $100M+ funding rounds in 2023 dropped by 73%, totaling 19 compared to 70 in 2022. Stripe led the funding landscape, raising $6.9 billion in its Series I round.

New Unicorns in the US FinTech space were limited to four in 2023, a significant decline from the 29 in the previous year. Notable names like Kin, SageSure, Lendbuzz, and Vestwell achieved Unicorn status by raising at least $200 million each.

Acquisitions in the sector declined to 172 in 2023, down from 247 in 2022 and 319 in 2021. Only two companies went public in 2023, compared to three IPOs in 2022 and 37 in 2021.

Payments, Investment Tech, and Finance & Accounting Tech emerged as the top-performing segments based on funding. Payments saw a remarkable 208% spike, raising $8.45 billion in 2023. Investment Tech secured $3.1 billion, a 56% decrease from $7 billion in 2022, and Finance & Accounting Tech received $1.4 billion, half of the $2.8 billion in 2022.

Among US cities, San Francisco dominated the funding landscape, contributing 50% of the funds raised by FinTech companies in the country. San Francisco-based FinTech startups raised $9.2 billion in 2023, followed by New York City with $2.3 billion and Palo Alto with $562 million.

Top investors in the US FinTech ecosystem include Y Combinator, Techstars, and a16z, with Y Combinator, a16z, and Spartan Group leading in seed-stage investments in 2023. Commerce Ventures, Khosla Ventures, and General Catalyst were the top early-stage investors, while Geodesic Capital, Capital IG, and Bond Capital took the lead in late-stage investments in 2023.

Source

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