Enterprise fintech soaked up about 70% of VC funding in the space in 2023

The data coming out of 2023 paints a picture of a sector that’s fallen precipitously out of favor. A recent PitchBook report shows that fintech M&A has been on a demonstrable, multiyear decline in the U.S. and Canada—in 2023, fintech deal value was down 45.8% from 2022, and is down 36.5% from 2021. Consumer fintech is especially going through a pullback as enterprise fintech soaks up whatever venture dollars are out there–in 2023, enterprise fintech startups secured 70.1% of fintech venture capital, up from 40.6% in 2019.

Most troubling was a prediction from the report, written by PitchBook’s Kyle Stanford and Vincent Harrison: “Fintech failures to continue for another three years: We believe we are in the fifth inning of fintech’s failure wave.” 

I’m no baseball expert, but I’m pretty sure that means we’re only about halfway through the game.

If you’re a fintech founder raising money right now, that’s scary. With the Fed’s interest rate cuts still in the future (and the zero-rate environment unlikely to return anytime soon), you might be feeling less like you’re in a baseball game than in a grueling marathon, with no finish line in sight. 

The good news is that fintech itself isn’t going anywhere long-term: The industry aims to solve real problems and has a giant total addressable market that exists—in some form or another—throughout the world.

At its best, fintech can foster financial flexibility and provide expert information to the public. There are so many fintechs devoted to helping people improve their credit scores, build their savings, and more easily access their money. (Of course, fintech also has its darker side—at its worst, fintech can enable predatory lending or facilitate fraud.)

But while the overall fintech sector will survive, startups are feeling the pressure and many are being forced to make tough decisions. In January, fintech behemoth Brex, valued north of $12 billion, laid off 20% of its staff. Over the last few months, we’ve seen layoffs at a wide range of smaller fintechs too, including a16z-backed Synapse and unicorn Zepz. Over in the public markets, Block (formerly Square) is also slashing its headcount. We’ve even seen full-fledged fintech-related shutdowns, as startups like Ness or ZestMoney shut their doors.

Fintech isn’t the only sector in the crosshairs right now. Consider crypto or web3, which once were hot and have now considerably cooled. But though there are connections between fintech and crypto, especially when it comes to the future of payments, fintech has long stood on its own, singular for its accessible potential.

Fintech has demonstrably made my life more frictionless—I barely carry cash anymore and among my millennial friends, we just pass money back and forth using digital payments apps. Even the hot dog carts outside every venue in Los Angeles take Venmo, PayPal, and Cash App. 

The only time I consistently pay with cash is when I visit the Turkish coffee stand on the Venice Boardwalk. But they take Venmo too.

Which is all to say, I’m worried about fintech. Because the best fintech startups are essential. But, in the next few gutting years, the market is going to decide who those are.

Elsewhere…Nvidia’s first-quarter earnings simply crushed it. The company’s Q1 revenues were up 265% from this time last year, and its adjusted EPS in that time—get this—is up more than 760%. Read more here.

See you tomorrow,

Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.

VENTURE DEALS

- Magic.dev, a San Francisco-based startup developing an AI software engineer, raised $117 million in funding. Nat Friedman and Daniel Gross led the round and were joined by CapitalG and Elad Gil.

- Clumio, a Santa Clara, Calif.-based developer of software designed to automate data backup, recovery, and compliance for businesses, raised $75 million in Series D funding. Sutter Hill Ventures led the round and was joined by Index Ventures, Altimeter Capital, and NewView Capital.

- Fabric, a New York City-based platform designed to automate clinical and administrative work for health care providers, raised $60 million in Series A funding. General Catalyst led the round and was joined by Thrive Capital, GV, Salesforce Ventures, Vast Ventures, Box Group, and Atento Capital.

- Highway 9 Networks, a Santa Clara, Calif.-based tk, raised $25 million in funding from Mayfield, General Catalyst, Detroit Ventures, and others. 

- Qloo, a New York City-based platform designed to predict consumer taste, has raised $25M in Series C fundraising. AI Ventures led the round and was joined by AXA Venture Partners, Eldridge, and Moderne Ventures.

- Orkes, a Cupertino, Calif.-based microservice and workflow platform, raised $20 million in Series A funding. Nexus Venture Partners led the round and was joined by Battery Ventures and Vertex Ventures US.

- Pozitivf, a San Antonio, Texas-based fertility clinic network, raised $20 million in funding from MonCap.

- Blackbird Health, a Pittsburg, Pa.-based in-person and virtual youth mental health provider, raised $17 million in Series A funding. Define Ventures led the round and was joined by Frist Cressey Ventures and GreyMatter.

- Power, a San Francisco-based clinical trial platform, raised $11.9 million in Series A funding. Kin and Contrary led the round and were joined by Footwork. 

- Conservation Labs, a Pittsburgh, Pa.-based AI platform designed to monitor water usage and identify potential leaks, raised $7.5 million in Series A funding. RET Ventures’ Housing Impact Fund led the round and was joined by Sustain VC. 

- Clairity Technology, a Los Angeles, Calif. developer of low-cost carbon dioxide removal systems, raised $6.8 million in seed funding from Lowercarbon Capital and Initialized Capital.

- Inco, a New York City-based confidentiality layer for Ethereum and other networks, raised $4.5 million in seed funding. 1kx led the round and was joined by Circle Ventures, Robot Ventures, Portal VC, Alliance DAO, and others. 

- Elektra Health, a New York City-based provider of evidence-based menopause education, care, and community, raised $3.3M in a seed extension. UPMC Enterprises led the round and was joined by Wavemaker 360 and existing investors Flare Capital Partners and Seven Seven Six Fund.

- Nodeshift, a San Francisco-based cloud platform, raised $3.2 million in funding. Inovo.vc led the round and was joined by Notion Capital, 10X Founders, and others.

- Evergrowth, a New York City-based B2B account-based sales platform, raised $2.2 million in funding. Impellent Ventures and Practica Capital led the round and were joined by others. 

PRIVATE EQUITY

- Cloyes Gear & Products, a portfolio company of MidOcean Partners, acquired Automotive Tensioners, a Denton, Texas-based supplier of accessory drive pulleys and tensioners to the automotive aftermarket. Financial terms were not disclosed. 

- Delinea, backed by TPG, agreed to acquire Fastpath, a Des Moines, Iowa-based provider of identity, security, and access control software for businesses. Financial terms were not disclosed. 

- Havenly, backed by Suttona Capital, agreed to acquire The Citizenry, a Dallas, Texas-based home decor brand. Financial terms were not disclosed. 

OTHER

- Bravo Store Systems acquired Data Age Business Systems, a Clearwater, Fla.-based provider of financial transaction software solutions. Financial terms were not disclosed. 

IPOS

- Astera Labs, a Santa Clara, Calif.-based developer of semiconductor-based solutions for cloud and AI infrastructure, filed to go public. The company posted $116 million in revenue for the year ending December 31, 2023. Sutter Hill Ventures and Fidelity Management and Research back the firm.

PEOPLE

- Coalesce Capital, a New York City-based private equity firm, hired Jonathan Gurss as a partner and Neil Merchant as a principal. Previously, Gurss was with Sentinel Capital Partners and Merchant was with Vestar Capital Partners.