Payments Tech Investment Report – $5.19B Invested Across 811 Deals Over the Past Five Years

From peer-to-peer payments platforms to point-of-sale systems to subscription accounting and billing services to cloud-based payment fraud detection services, investors are actively targeting various issues within payments. Investors have funded emerging private payments companies to the tune of over $5 billion in the past five years.

This analysis provides an in-depth look at the payments tech financing landscape as well as the investors and companies fueling the payments startup ecosystem.

Specifically, it covers:

• Financing Trends By Stage
• Payments Tech Geographic Hubs
• The Most Well-Funded Payments Tech Startups
• Payments Most Active Investors
• Exit Activity

As the graph below highlights, deal activity to the funding space has consistently grown over the last 5 years. With almost 230 deals last year, the space saw deals climb 8% from 2012 and 171% since 2009.

The quarterly funding activity chart shows the general growth in deal activity and the influence of large deals on the overall funding tallies. Q1 2014 was a breakout quarter for payments tech with almost $700M in venture financing, owing to a few notable deals including Stockholm-based Klarna, which has seen heavy investment from Sequoia Capital, and which raised €90M ($121M) in a growth equity round and Stripe, which raised $80M in Series C funding at a valuation of $1.75B.

Payments Tech Financing by Stage

Some clear trends in payments tech funding by stage have developed since 2009, most notably an increase in early-stage funding as Seed and Series A deals took almost 41% of all funding in 2013 up from just 16% five years ago. Higher levels of early-stage funding indicate investor bullishness on the segment. For corporate innovation groups, these are the emerging payments disruptors and technologies to be mindful of. Early-stage financing has mostly taken share from Series D and later rounds, which have shrunk from over 50% of funding dollars in 2009 to 22% last year.

The sharp spike in 2011 Series C funding is attributable to $100M+ funding rounds by algorithmic cash-lender Wonga and mobile payments provider Square. In its Series C round, Square raised money from the likes of Kleiner Perkins, Khosla Ventures, Tiger Global, and Richard Branson and was valued at $1.6B. In it’s most recent secondary transaction from investors including Rizvi Traverse, Square raised funding at a $5B valuation.  It is feasible the company’s valuation has likely slipped given its woes on both the business model and product fronts (see Square’s poor mobile app performance)

In line with funding growth, early-stage deals have increased significantly to comprise 75% of deals last year compared to 50% in 2009. The increase was brought about by dramatic growth in seed-stage deal activity which rose to 46% in 2013, in spite of slightly declining Series A activity.

Payments Tech Geographic Hubs

Not surprisingly, California led US states in payments tech deals by a wide margin, with 245 deals since 2009 yielding almost $2.2B in investor backing. Some of the state’s most well-funded payments companies include Square, Obopay, Yodlee, Zuora, and Stripe. For comparison, New York and Massachusetts together saw 112 deals in the same period.

The United Kingdom and India follow the United States in payments tech deals, although US-based companies held the vast majority of deals in the industry.

The Most Well-Funded Payments Tech Startups

Square, a POS solutions provider based in San Francisco, has raised almost $350M in venture capital to date and is one of the most well-funded companies in the space.

Stockholm-based Klarna specializes in payment solutions for ecommerce, and has raised almost $300M in venture capital. Klarna has enjoyed extensive investment by VC giant Sequoia Capital, which has participated in the company’s Series A round in 2010 and all three of its growth equity raises since. It is worth tracking Sequoia Capital btw (Sequoia Capital teardown and Smart Money Fin Tech trends)

Rounding out the top three companies on our list, algorithmic cash lender Wonga has raised over $145 in venture capital from some major investors, including Accel Partners, Oak Investment Partners, and Greylock Partners. Five of the companies below, including Wonga (London-based), are based outside the United States.

Investor League Tables

500 Startups leads investors in payments tech companies having invested in 14 companies in the industry since 2009. Some of 500 Startups’ investments include Recurly, peerTransfer, and PayClip.

Other widely-known VCs Accel Partners and Andreessen Horowitz top our list, investing in twelve payments companies each. Intel Capital is the only corporate venture arm to appear on the list below.

Early-Stage Investors

Not surprisingly, 500 Startups also tops the list of early-stage payments tech investors, as all 14 of its investments in the industry were at the seed stage. SV Angel and Accel Partners tied for second-most investments in the payments space. It’s interesting to note that had incubators been included, Y Combinator would also have ranked #2 on the list below.

Mid-Stage Investors

Balderton Capital, the European division of Benchmark Capital until 2007, has been the most active investor in mid-stage payments companies. The London-based VC has invested in several startups in the payments industry since 2009, including Wonga, LevelUp, and EWise.

Late-Stage Investors

Sequoia Capital, DAG Ventures, FTV Capital, Doll Capital Management, and TTV Capital led investment in late-stage payments tech among VCs. With the exception of TTV, all are based in California.

Exit Activity

The payments tech industry saw a decline to about 50 exits last year, down from a peak of 69 exits in 2012. Acquisitions make up the vast majority of exit activity within the industry. Notable industry exits include Braintree, which provides ecommerce payments platforms and was acquired by eBay’s Paypal business unit last year for $800M and Xoom Corporation, an instant money transfer service that IPO’d.

eBay/PayPal have been the top acquirer of payments tech companies in the past several years, buying six companies since 2009. Google, American Express, and Intuit also bought several companies in that time.  The diversity of acquirers underscores the players, both new and old, attacking the payments space.

Notes:

This analysis includes private company investments in the payments tech industry by venture capital firms, corporations, corporate venture investors, hedge funds/mutual funds, angels, incubators and accelerators. Debt, grants and lines of credit were not considered in this dataset.

All data in this research brief is from the CB Insights private company database. Login or create a free account below.