Deals to regtech startups have progressively risen over the last 5 years and hit a new high in 2016 with 99 deals (as of 12/31/16). Startups in this space are using technology to simplify and streamline compliance, risk management, reporting, data management, and more.
Corporate investors, including corporate parents and corporate venture capital (CVC) groups, have been actively participating in deals to regtech companies, with 2 corporates on the most list of most active regtech investors. Corporate investors also participated in some of the top deals to the category, including a $51M Series E investment in Q3’16 to Druva that included NTT Finance and a $60M Series F investment in Q3’14 to MetricStream that included Kaiser Permanente Ventures.
Using CB Insights data, we analyzed corporate and CVC participation in deals between 2012 to 2016 in private regtech companies. Regulation technology applies to companies across industries including financial services, healthcare, supply chain and product, cannabis, construction, and even cybersecurity.
This report contains detailed information on:
- Annual financing history
- Quarterly financing history
- Financing trends by stage
- The most active corporate and CVC investors
Annual financing history
Funding that included a corporate or CVC investor reached a 5-year high last year, from $65M in funding in 2012 to $236M in 2016. Corporate and CVC investors participated in 16 deals, 1 deal shy of 2014’s record 17 deals.
Corporate involvement took off in 2014 with deals increasing by 143% and funding by 284%. Corporate participation in deals and funding slipped in 2015, however, while still easily surpassing 2012 and 2013’s combined totals.
Top corporate-backed regtech deals of 2016 include a $51M Series E investment to Druva, mentioned above, a $50M Series F to LogRhythm that included Siemens Venture Capital, and a $30.5M Series C to RiskIQ that included MassMutual Ventures.
Druva and RiskIQ are both information security software companies that help address compliance with data governance standards. LogRhythm provides cybersecurity software that automates compliance with cybersecurity regulation.
Quarterly financing history
In Q3’16, corporate-backed participation in funding to regtech companies reached its highest quarterly total, with $124M raised across 4 deals. In Q4’16, deal participation reached its second-highest quarterly total with 6 deals. However, funding involving corporate participation was down to $77M.
The surge in 2014 was driven largely by Q3’14 activity. Q3’14 saw $121M raised across a record of 8 deals. Participation in deals started to decline in Q2’15 and consistently declined through the end of Q4’15, resulting in an overall decline in deal participation for the year. Deal participation started to recover in Q1’16 and ended the year trending upward.
Closing out the year, the top deals in Q4’16 were a $30.5M Series C investment to RiskIQ, mentioned above, a $23M Series D to Kyriba that included HSBC Venture Capital, a $16M Series A to Droit Fintech that included DRW Trading Group, and a $13.3M Series D to OpenGamma that included NEX Group.
Kyriba is a cloud-based portfolio risk management software for financial services companies that monitors and reports on portfolio performance. Droit Fintech provides financial services companies with software to execute derivatives trading in compliance with regulatory guidelines. OpenGamma is an open-source software that provides market risk management tools for financial services companies including a tool to analyze and optimize derivatives trading.
Financing trends by stage
In 2016, the distribution between deal stages was near evenly spread out. Early-stage deals (seed/angel and Series A) accounted for 25% of corporate-backed deal share, mid-stage deals (Series B and C) also made up 25%, late-stage deals (Series D and E) made up 38%, and the remaining 13% went to our “Other” category, which includes minority investments by corporates and convertible notes.
As annual corporate participation in deals increased, the distribution started shifting away from early-stage deals to mid-stage and late-stage deals. In 2013, there were 7 deals total and these were entirely early-stage and mid-stage deals. In 2014 when deals surged, corporates made their first later-stage investments, the largest of which was a $60M Series F investment to risk management software provider MetricStream mentioned above.
The most active corporate and CVC investors
Salesforce Ventures is the most active corporate investor and has participated in deals to more than 5 unique regtech companies. Salesforce Ventures’ top investments include participating in a $40M Series C investment to Skyhigh Networks, a cloud security company that monitors compliance and governance requirements, a $10M Series A investment to nCino, a cloud-based portfolio risk management software for the financial services industry, and a $4.6M Series A to RedOwl Analytics, an information security software company.
The next biggest corporate investor in regtech startups is the CIA’s strategic fund In-Q-Tel. In-Q-Tel’s top investments include participating in a $40M Series F investment to Veracode and a $12.5M Series C investment to HyTrust.
Each of the top 5 investors made investments to at least 2 unique regtech companies.
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