Global fintech funding already surpassed 2020 levels

The news: Fintechs raised $36.8 billion across 1,209 deals. The total funding for 2021 already exceeds all funding raised during the entirety of 2020, per CB Insights.

Here’s what drove funding activity in Q2: Fintechs dominated global startup funding in all sectors: One dollar out of every $5 raised in Q2 went to a fintech.

• Mega-rounds: 88 fintechs raised more than $100 million each, which accounted for 70% of total funding. Investors target startups that are disrupting fast-growing, multibillion-dollar markets, like the explosive growth of ecommerce transactions and trading.
• LATAM: Fintech funding in LATAM has now reached $4.25 billion in 2021 so far, up from $2.80 billion for all of 2020. Brazil took home 70% of the region’s funding in Q2. This is likely thanks to incumbent banks’ dominance and soaring fees, coupled with the high demand among its large underbanked population for fintech solutions—especially amid the speedup of the digital transformation that the pandemic brought about.
• Europe: While funding in Europe didn’t grow as dramatically as in LATAM, it attracted half of the mega-rounds of the quarter, such as for Trade Republic, wefox, and Klarna. This is likely thanks to increasing consumer fintech adoption, with 62% now open to switching from physical banks to digital platforms, up from 49% in 2017. Investors may also be encouraged by a public policy push among both UK and EU regulators to nurture fintech innovation in the region.

Can the momentum be sustained? For the rest of this year at least, yes. Fintech-focused funds have a lot more money to dish out in the hope of more lucrative exits.

Andreessen Horowitz raised $2.2 billion for its third crypto fund in June. This month, Index Ventures raised $2.9 billion that will in part invest in fintechs, and Ethos Invest announced a fund aimed to reach £1 billion ($1.28).

The proliferation of funds is due to investors’ view that fintech startups have significant potential to rapidly appreciate in value: Fintech unicorns now account for close to one in five of the world’s unicorns. And when they eventually go public, their private backers could get sky-high returns. Andreessen’s stake in Coinbase was worth $11.2 billion when the exchange went public in April—more than half the amount of capital the VC raised from investors in its 12 years of operation.

With a record number of fintech exits already having occurred this year, many private investors who made a pretty penny from them are now reinvesting their earnings in the next winners—even as new funds also rush to get in on the action.