For Startups, Funding Deals Aplenty, But Smaller Checks

Financing activity for startups in the payments business continued at a hectic pace over the past six months—but the total dollars invested fell through the floor.

There were 75 funding deals in the first quarter totaling $396 million, according to the latest data from CB Insights, a New York City-based firm that follows tech funding. That follows a fourth quarter that saw 83 deals worth $253 million.

For payments startups, those were pretty good financing quarters historically, but they came in the wake of a one-year tear from the fourth quarter of 2014 through the third quarter of 2015. That third quarter was particularly lucrative, with 66 deals that brought in a record $1.62 billion. Indeed, the slowest quarter in that period was the first three months of 2015, and that stretch brought in $670 million on 67 deals.

All told, despite the fourth-quarter dollar drought, 2015 was a very good year for fledgling payments firms, with a record $3.3 billion in funding on 293 deals. And while funding levels collapsed in the last three months of last year, those 83 deals are a quarterly record, says CB Insights.

Also, the third-quarter bonanza was largely concentrated with three firms that accounted for 72% of the money: Paytm parent One97 Communications ($680 million), Alibaba-linked online-payments processor Ant Financial (a $400 million series A round), and online processor Stripe (a $90 million series D).

Where are the money men placing their bets now? “Investors are pumping money into companies building bitcoin-powered payments startups, mobile commerce, billing services, money-transferring services, point-of-sale solutions, and much more,” says a CB Insights post presenting the funding results.

In the first quarter, money chiefly flowed to insurance-payments automation provider StoneEagle (a $76 million growth-equity round), blockchain-technology vendor Blockstream (a $55 million series A) and Aria Systems, a provider of billing systems for recurring revenue (a $50 million series E). Overall, the five most-funded payments startups all-time are:

1. One97 Communications: $1.3 billion

2. Ant Financial Services Group: $400 million

3. Affirm: $325 million

4. Mozido: $314 million

5. Klarna: $289 million

Affirm is an online consumer lender for e-commerce transactions and was founded four years ago by former PayPal executive Max Levchin. Mozido and Klarna are mobile-payments companies and are also, along with One97, so-called unicorns, or privately held tech companies worth at least $1 billion.

—John Stewart