Canadian fintech investment shrinks in first half of 2023 - report

Photo courtesy of Steve Marcus, Reuters

Article courtesy of Manya Saini, Reuters

TORONTO. – Investment in Canada's financial technology sector was reduced to less than half in the first six months of 2023 from last year, according to a report from accounting firm KPMG on Thursday.

Startup valuations across the technology spectrum have been hit as high-interest rates and worries over a looming economic slowdown sour investor appetite, leading to a shift towards safer investments with greater focus on profitability and away from cash-burning firms.

From January to June 2023, investments, including venture capital, private equity and merger and acquisition activity, totaled $353.7 million across 57 deals, according to data compiled by PitchBook for KPMG in Canada. There were no IPOs, continuing the drought from last year.

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In comparison, the first half of 2022 saw $834.1 million invested across 109 deals. In the second half, $1.09 billion was invested across 87 deals, the report said.

"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," said Geoff Rush, partner and national industry leader for financial services at KPMG in Canada.

Analysts note that while a number of fintechs have managed to preserve or stretch their funding so far this year, those that need to raise funds in the near-term could likely do it at flat valuations and down rounds.

"We could see some stability coming back to financing markets by the end of 2023 or early 2024. Unfortunately, that timing may mean some more mature fintechs that have yet to achieve sustained positive cash flows may be facing very difficult choices by then, such as selling at down-valuation or simply shuttering," said Georges Pigeon, a partner in KPMG in Canada's deal advisory practice.