Fintech funding takes hit as AI investments surge in first half of 2024
Ireland’s fintech sector saw a sharp decline in funding in the first half of 2024, with total investment falling by 90% year-on-year, according to a new annual report analysing the sector by Finch Capital.
The annual State of European Fintech report for 2024 found that Irish fintech companies raised just €22 million in the first half of the year (excluding SoftCo’s €100 million acquisition by private equity firm Keensight), a steep drop from the €212 million secured during the same period in 2023.
While venture and buyout capital in Ireland remains on par with 2023 levels, the report highlighted a notable 40% reduction in average fund sizes. The largest deal done in Ireland in the first half of 2024 was a €10 million funding round for Cork headquartered Zartis.
Ireland’s dramatic contraction in funding reflects broader market trends, as the global fintech sector faces economic headwinds and cautious investor sentiment. The report anticipates recovery in the sector in 2025, as investor confidence is expected to return and deal volumes are projected to rise.
The report also pointed to early signs of recovery in Europe’s fintech jobs market, which has grown by 10% year-on-year, suggesting that sectoral resilience could support a rebound in investment activity, reversing the contraction seen in previous years.
Higher rates and funding
Despite a notable contraction in funding across Europe, some key sub-sectors helped by higher interest levels, such as challenger banks like Revolut and Monzo begin showing profitable growth.
However, profitability in sub-sectors like banking is driving larger funding rounds as the top challenger banks generated over €700 million in profit in 2024 compared to a €150 million loss in 2023.
The report also found that funding rounds for fintech unicorns have slowed, with investors prioritising companies with solid financial fundamentals and avoiding overly ambitious valuations based on hyper growth and unproven profitability.
European exits under €500 million accounted for 32% of global M&A activity, although the market remains smaller than the US for larger deals.
Commenting on the findings, Mike Brennan, partner at Finch Capital, said: “The challenges that fintech faced in 2023 were necessary for the sector to mature and become more sustainable. While funding may be down overall, and unicorn chasing has slowed, there is plenty of opportunity for companies that are capital efficient and have a clear path to profit.
“With AI transforming the industry and significant dry powder still available, the next 12-18 months will mark a turning point for fintech in Europe. The next wave of fintech success stories will likely be built on sound financials rather than rapid revenue growth alone.”
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