RegTech investment saw a strong end to the year as funding more than doubled QoQ

The RegTech industry saw $448m invested in Q4 2017 – more than double the value of the previous quarter, making it the strongest funding quarter to date.
This surge is partially due to a rise in the funding raised from deals valued above $40m which increased by 4.7x. Additionally, funding raised from sub-$40m deals increased by 1.6x.
The largest RegTech deal of Q4 2017 went to MetricStream, a provider of cloud-based solutions for governance, risk and compliance. The company raised $65m in a venture round led by Clearlake Capital Group with co-investment from Goldman Sachs, Sageview Capital and EDBI.
Despite the surge in total amount invested, deal activity in Q4 2017 remained well within range of historic levels at 23 deals, 7 less than in the same quarter last year.

The total amount invested in RegTech companies globally increased steadily at a CAGR of 10.8% between 2014 and 2017 to reach a total of $1.04bn.
As the RegTech industry matures the growth in investments is mainly driven by later-stage deals. Last year funding from deals valued above $40m increased by more than 50% YoY, whilst funding from deals in the $0-40m category remained fairly steady.
In contrast to this, deal activity dropped in 2017 to reach its lowest value since 2013. Correspondingly, the average deal size increased from $9.8m in 2016 to $13.5m in 2017.

There was a shift towards larger deals from 2014 to 2015, as demonstrated by the share of sub-$1m deals falling from 40% to 28.4%. This category then remained steady over the next year, before dropping in share again by 15.8% between 2016 and 2017.
The decrease in share of smaller deals was partially offset by an increase in deals valued above $25m. This category more than doubled its share between 2014 and 2017, increasing from 9.4% to 19.5%.
Additionally, deals valued between $10-25m increased in share over the four-year period, from 12.9% to 22.1%. Notable deals in this category from 2017 include a $17.5m deal to Simility, a provider of fraud prevention solutions, in a Series B round led by Accel Partners. Additionally, Dome9 Security, a cloud security specialist, raised $16.5m in a Series C round led by Softbank.

In 2014, almost 70% of RegTech deals went to companies based in North America, whilst those in Europe represented a quarter of all deals.
Over the period of 2014-2017, North America’s share of RegTech deals decreased by 13%. This decrease was partially taken up by deals to Asian RegTech companies, which increased from 1% to 6.2% over the same period. All deals in Asia went to companies based in either Singapore, Hong Kong, China or India.
Additionally, companies in ‘Other’ regions, including South America, Australasia and Africa, increased in deal share from 1% in 2014 to 7.2% in 2017. This highlights the spreading geographic range of the RegTech industry as it matures.