We recently completed our first in what will be series of sector reports, which takes a deep dive on UK fintech. These reports are to help both startups and investors better understand markets through highlighting trends in fundraise sizes and valuations. The goal is to level the playing field, arming both sides with as much market information as possible.
Fintech has been at the core of the London and broader UK tech scene for what feels like forever. It certainly is a critical sector for the UK given the importance of financial services to the economy, particularly with the B word around the corner. As you’ll see, there is a lot to be encouraged about – at least from an investment perspective. Fintech startups are receiving more investment at higher valuations than ever before. Whether this translates into future financial services champions remains to be seen. There are lots of great examples and cutting edge companies – including Transferwise, Monzo and Revolut spring to mind – and a lot to be hopeful for.
We discovered a few interesting trends we thought was worth sharing with the community. These are the five things that jumped out at us.*
Investment in fintech startups grew by over 500% from 2013 and 2017
What really jumps out right away is the sheer growth in investment in fintech startups during the timeframe we are looking at.
In 2013 just £170m gets invested in financial technology startups. By 2017 that number rises to over £1bn, translating to an increase of well over 500%.
Interestingly, though, it does so in stops and starts. Much of the 2017 figures were driven by a few hefty raises for the likes of Transferwise (£215m), Atom (£113m), Funding Circle (£82m), Monzo (£71m) and Revolut (£51m). However, increased investment was present across various growth stages.
Fintech Raises Happen on Crowdfunding
In a somewhat meta twist, the two most prominent ‘investors’ in fintech were Seedrs (53 rounds) and Crowdcube (32 rounds). This makes sense – they both raised via their own platform, as did a couple high profile consumer-facing challenger banks (Revolut via Seedrs and Monzo via Crowdcube).
This is perhaps somewhat a reflection that many fintech startups are consumer facing. And crowdfunding is a good forum for consumer facing propositions.
In terms of amount raised, however, crowdfunding sites don’t rank in the top 10. Big traditional VCs like Accel (£293m) and Index (£271m) lead the way.
Accelerators Play a Part
Accelerators play a large role in UK fintech. 39 percent of the startups we looked at attended an accelerator programme, the most common being Fintech Innovation Lab London, followed by FutureFifty, Seedcamp and Barclays Accelerator and ELITE. The vast majority (nearly 70 percent) attended at the seed stage.
In terms of impact – those that attended an accelerator saw significant increases in valuation at the venture and growth stage compared with those who did not attend oner. Correlation of course does not equal causation, so it would be worth exploring this further.
Also interesting – those at the seed stage saw a slightly smaller valuation. We don’t know if the valuation came before or after accelerator attendance unfortunately so it is impossible to say how this impacted the early valuation. One possible explanation is many accelerators invest at a set amount and valuation, which is generally fairly small and done at a quite early stage.
The Impact of Brexit on Investment and Valuations is Hard to Discern
2017 is the the banner year for fintech investment with over £1bn invested in UK startups. This, despite the year before throwing the entire economy into uncertainty with the vote to leave the EU. This would potentially have huge impacts on fintech given the importance of the single financial market and being able to deliver products and services across the UK.
However, if Brexit did have an impact on fintech, it only did so in the second half of 2016, where investment was down 30% overall from 2015. However, in 2017 that number came roaring back.
In addition, valuations of fintech startups didn’t appear to take a hit – apart from growth stage business who had a slight blip in 2016.
Consumer Propositions Lead the Way
So far the the biggest names in UK fintech – Transferwise, World Remit, Atom, Monzo, Revolut – all have one thing in common: they are all generally consumer facing. Even Funding Circle is a B2B2C proposition.
This could reflect that we are in the early days of fintech. Consumer problems are the most obvious and are being solved first. Banks kind of suck, it is hard/expensive to transfer money internationally, and so on. That could also mean there is huge opportunity still to solve B2B challenges.
There are a few interesting B2B names out there right now. Truelayer allows other financial technology companies to access consumer banking data. Go Cardless allows companies to take direct debit more easily. Tide is exclusively a business-facing challenger bank. In addition, some of the consumer propositions will inevitably move into the B2B space. Revolut, for example, now offers business banking.
* We used Beauhurst data to look at all fintech and alternative finance equity rounds between 2013 and 2017. Learn more about our data here.