European fintechs start the year on a high note with valuation growth

Fintechs in Europe have seen growth in both deal sizes and pre-money valuation in the first quarter of this year, according to new data.

Pitchbook’s latest report, on European VC valuations, shows that median early-stage fintech pre-money valuations grew to €22.1m in the first quarter of 2023. 

This puts it ahead of the 2022 value of €13.8m.

Early-stage deal size is similarly ahead, pacing 22.7 per cent higher than in 2022, alongside seed and angel.

The report does acknowledge, however, that this positive trend may not be entirely reflective of the current state of deals and valuation as data may be lagging behind “recent market dynamics”, with challenges continuing to arise amid rising interest rates.

Late-stage companies are set to suffer the most from these challenges, with median venture-growth pre-money valuations down 59.7 per cent compared to 2022.

The report predicts that valuations within the sector will continue to face pressure, and cited TriplePoint Venture Growth reportedly lowering the value of its stake in Revolut by 14.9 per cent in March as evidence of this.

Schroders similarly decreased its valuation of Revolut by 46.4 per cent in April and marked down its stake in Atom Bank by 31 per cent.

With a widespread VC trend of focus shifting towards profitability rather than growth at all costs, valuations that ballooned have since largely plateaued in 2023, according to the report.

Over the past 12 months, following a boom in 2021 and early 2022, there are been lower growth rates, workforce reductions and tougher funding conditions, and there was a deceleration of VC funding in Q1 of 2023 as investors become more selective.

As mirrored in fintech, angel valuations were “robust” — particularly when compared to late-stage companies — with a median pacing of  €3.7m, compared to €3m in 2022.

However, fewer deals took place in the first quarter of the year compared to last, so this uptick could be due to a few outliers of larger publicised rounds, with others still in stealth mode.

In general, flatter valuations were the trend for the start of this year, and Pitchbook said it “ anticipate[s] further downward pressure on valuations as capital availability shrinks and businesses explore flat or down rounds over the next few quarters”.

With a sharp drop in the number of new unicorns so far this year (just two), the report noted steep valuation growth is unlikely “until fresh rounds tied to higher valuations are completed”.

It also is predicting that reports of stress on valuations, which have already been seen at fintechs like Klarna,Revolut and Checkout.com, could spread to the wider VC ecosystem.