Fintech funding at crisis point: EY
Start-ups are facing significantly higher barriers to entry than 12 months ago, according to a survey by the big four firm.
Funding sources for fintechs are drying up, a survey from EY finds, with founders having to reach into their own pockets or consider taking their enterprise abroad to more favourable markets.
Over 40 per cent of fintechs surveyed in EY’s Fintech Australia Census 2023, in collaboration with FinTech Australia, said they had failed to meet their capital raising expectations this year.
This was a 12 per cent increase on last year and the highest level since 2020.
FinTech Australia general manager Rehan D'Almeida said the census highlighted the sector’s “urgent need” for more support from investors and government.
“This year’s census uncovers a crisis point for the funding of innovation in Australia. We need visionary investors and government focus to keep our brightest and best fintechs resident in Australia to power our nation’s economic vitality,” he said.
“We’ve hit a critical inflection point where we are either going to see the ecosystem spring up or spiral down.”
The survey said the biggest barriers to capital raising were the challenges of finding the right investors in Australia and macro-environmental factors.
The proportion of companies that were equity funded through angel investors fell this year to 22 per cent, compared with 30 per cent in 2022, and the majority (57 per cent) of fintechs relied on founder funding to make up their shortfalls.
Fintechs also ranked raising equity as their biggest challenge for the next year. Close to two-thirds of respondents (61 per cent) said they expected it to be a greater stumbling block than economic conditions.
Selda Kaplan, CEO of Melbourne-based fintech TaxLeopard, agreed that raising capital was a challenge when founding her accounting app for freelancers and sole traders with COO Michael Kambouridis in 2022. “Raising capital can be complicated for any fintech and we’ve had to bootstrap significantly in order to sustain the business and grow it to the successful position it is in today."
In addition to using her funds, Ms Kaplan said forming partnerships had helped grow the fintech's fundamentals and users, positioning it to be ready for an external funding round next year.
"With restricted capital, we have been able to do impressive work like forging strategic partnerships with global gig economy companies like Didi, DoorDash, Fiverr, and now Uber - through our recent acquisition of Airtax. We're also working with RMIT’s Centre for Industrial AI Research & Innovation (CIARI) to build our AI capabilities, including developing an AI-based Smart Tax Assistant."
"As we step into our next phase of growth, we are actively seeking investment to fuel that charge as we move into 2024 and beyond."
The survey also found that start-ups faced “significantly higher barriers to entry” than 12 months ago. As a result, only 3 per cent of 126 fintechs surveyed were one year or younger.
“[The census] reveals a two-speed economy for fintech funding in Australia, with early-stage start-ups struggling more than mature companies,” it said.
EY Oceania fintech leader Malia Forner said “immediate changes” were needed to “make Australia a more attractive environment to start and grow a business.”
Otherwise, she said fintech founders would look at “alternative geographies for capital, growth or their headquarters”.
Most respondents wanted to improve clarity and guidance around the government’s R&D tax incentive, lower tax rates for income attributable to Australian technology and patents, and tax support for collaboration with the universities and research centres, the survey said.
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