Over the last two years, earlier-stage funding deals for payments companies accounted for 87% of total global payments funding deals, according to data from CB insights.
Here are the key insights:
- Early-stage funding grows. The number of seed/angel through Series B funding deals for payments startups grew from 153 in 2012 to 174 in 2013. These early funding deals also grew to account for 90% of total payments deals, compared to 84% in 2012.
Late-stage funding declines. The number of payments startup deals for Series C funding or later declined from 23 deals in 2012 to 19 deals in 2013. The share of deals for those funding stages declined from 13% in 2012 to 10% in 2013.
In the startup funding process, each round of funding serves a different purpose. Earlier rounds are intended to help a business get off the ground and develop products while middle (mezzanine) and later rounds are intended to help businesses expand before investors make their exits. The amount of rounds of funding required by startups differs from business to business, but a general rule is that as startups move into further funding stages they are more likely to be acquired or IPO. A good example is PayPal’s $US800 million acquisition of Braintree which occurred about a year after Braintree recieved Series B funding.
One of our predictions for 2014 is that mergers and acquisition activity (M&A) will increase in the payments space and this data lends some support to that hypothesis. In terms of the number of deals and the share of deals, 2013 was a year of increased early-stage funding and decreased late-stage funding. That means that in 2014 many startups will be entering later funding stages where they are more likely to become merger and acquisition targets.
The top 5 investors in payments startups over the last two years were Intel Capital, AmEx Ventures, Citi Ventures, Google Ventures, and MasterCard Worldwide. AmEx has actually been investing in a handful of companies — iZettle, Square, and SumUp — that compete with one and other. This might be an indicator that the company is looking for winners to scoop up once they prove their business models.
The companies that are included in CB Insights data fall into the following categories: mobile and online payments companies, point-of-sale providers, money transfer services, financial services for the unbanked, and payments processors.
Here is a look at the share of total payments deals by funding stage:
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