Friday , March 29, 2024

Money Taps Are Turned on Full for Payments Startups As a Record Year Looms

The gold rush in payments-startup financing that began about a year ago is likely to be even bigger in 2015, according to the latest report from CB Insights, a New York City-based investment-research firm.

Last year set a record for startup funding, with $2.23 billion pouring into new payments companies. But, with $720 million invested in the first quarter, 2015 is “already on pace to exceed record financing in 2014,” says the report.

Indeed, in the four quarters through March 2015, startups attracted $2.42 billion, a 74% increase year-over-year from the $1.39 billion lavished on emerging companies in the prior four quarters. The quarter ended Dec. 31 was especially active, with investors writing checks for 41 deals worth $1.05 billion, says the report, which tracks payments-deal activity back to the first quarter of 2010.

While payments startups have appealed to investors all along, the last five quarters have proven to be especially lucrative. From 2010 through 2013, total investment ranged from $700 million to $1.2 billion annually. The explosion came last year as mobile-payments and money-transfer firms began to show promise, CB Insights says. The number of deals has abated somewhat, but the money spigot has been wrenched on full for each event. The deal count fell from a high of 178 in 2012 to 148 last year. Currently, the industry is averaging about 40 deals per quarter.

The most-funded startup over the past five years is San Francisco-based Square Inc., which was founded in 2009 and has attracted a total of $700 million. The most recent investment, a $150 million Series E round in October, valued the company at better than $6 billion.

Number two is Austin, Texas-based mobile-payments provider Mozido, at more than $300 million. Founded in 2005, Mozido had as its most recent event a $185 million Series B round, also in October, which included MasterCard Inc. among the roster of investors. Ten-year-old Swedish payments processor Klarna, which has recently established U.S. operations, is number three at $282 million. Its most recent investment was a private-equity round in March last year. E-commerce processor Adyen and subscription-billing provider Zuora round out the top five.

Who is controlling the taps for this gusher of money? The top three investment firms overall since 2010 are 500 Startups, Andreesen Horowitz, and Accel Partners, according to the report. 500 Startups also tops the ranking of most active early-stage investors, as all of its payments investments have been at this stage. Accel Partners is second and SV Angel ranks third.

So-called mid-stage funding—Series B and C rounds—is dominating investments currently, accounting for 56% of dollars invested in 2014. Late-stage investments, Series D and E rounds, have been declining and accounted for 24% of dollars last year, while Series A funding collapsed to just a 1% share in the first quarter after accounting for 17% of dollars invested in 2014.

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