Investors have gone sour on Canadian fintech deals this year, here's why

The amount invested in the space has slumped in the first half of the year according to KPMG in Canada

Investors have gone sour on Canadian fintech deals this year, here's why
Steve Randall

Investors have taken a cautious approach to the Canadian fintech industry due to macroeconomic concerns.

A new report from KPMG in Canada shows a significant pullback from investment, from more than US$1 billion across 87 deals in the second half of 2022 to $354 million across 57 deals. It’s also less than half the $834 million invested in the first half of last year.

The stats are based on investment including venture capital, private equity and merger and acquisition activity, although VC accounted for the largest share - $260 million invested across 47 deals – with most activity in early-stage and seed-round investments, followed by late-stage funding rounds. There were no IPOs.

The report shows one of the weakest periods for Canadian fintech valuations since the pandemic-weakened first half of 2020.

The slump was in the second quarter of 2023 with the first three months beginning well with 30 deals and $297 million invested. But April-June saw less than $57 million from 27 deals, making it one of the worst quarters for valuations since Q3, 2016.

The second quarter saw VC investment rebound according to a CPE Analytics report, but it noted that this did not extend to fintech.

Weakness since 2022

The current weakness began last year and Geoff Rush, partner, and national industry leader for financial services at KPMG in Canada says there are several reasons.

"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," he said.  "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.” 

Rush says that the rest of the year is likely to see a continuation of the downward trend.

"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.”

Read more: Brace for impact of emerging technologies