Total investment in the RegTech sector skyrocketed from 2016 to 2019, growing at a compound annual growth rate (CAGR) of 93.1%, as investors increasingly backed companies looking to solve and bring efficiency to outdated compliance processes as well as take advantage of the new complex regulations coming into effect such as MiFID II and GDPR. The rise in total funding in 2019 was mainly driven by large deals over $50m which made up 63.9% of the total funding for the year.
RegTech funding was set to decline after the first three quarters of last year saw a 3.4% drop in total funding compared to the same period in 2019 along with a 4.3% decrease in deal activity. However, the sector ended the year strongly and recorded $3.1bn worth of capital invested across 122 transaction in Q4, which was a five-quarter high for both funding and deal activity.
As a result, 2020 set new annual funding and deal activity records beating 2019’s numbers by 13.9% and 7.4%, respectively. Investors are optimistic about this year’s prospects with permanent shift to increased digital operations and better economic outlook on the back of the positive vaccine news. However, the record investment was heavily fuelled by transactions over $50m and the proportion of funding coming from deals under that threshold fell by 7.2 percentage points.
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