Nearly every week in the papers, twitter, Linkedin, etc we hear that Fintech is the “big thing” and the UK is leading the world in this area. We have all heard of fantastic success stories of Funding Circle, World Remit, Transferwise, Market Invoice to mention just a few but is there really an army of start-ups waiting to change how we save and pay? London’s incubators do have a very large number of Fintech companies but how many will survive the fight for investment?
To try to get an idea of what is really going on, we have looked at our investment deal data on Fintech companies over the last two years. Firstly we should define what is a Fintech business we believe that is one which sells technology to financial services companies or financial services via technology to businesses and consumers. This is a lot tighter definition than that used by other parties and hence our numbers are lower than many quoted by various organisations. The headline numbers are in 2015, 71 UK/Irish Fintech businesses received £544m of venture/growth capital from 99 investors. This means that Fintech companies represents 21% and 19% of the value and volume of whole tech market – a significant part but far from the dominant position it is credited with.
Investment in Fintech has grown in the last few years and financings in the sector are significantly up in 2015 – the number of deals increased by 87% and value by 29%. This is quite different from the tech market as a whole which saw volume grow by 53% and value by 76%. Effectively this means that the growth we are seeing in Fintech is very much at the smaller end of the market. Last year, 68% of Fintech financings raised less than £2m. This is reflected in the investors who are backing these companies – primarily small VCs and European investors. Private investors are investing in Fintech but at much lower levels than in the market as a whole. Many key Series A investors have already committed to specific companies in the sector and therefore their presence in new deals is low or sporadic. Slightly more worrying, is major financial institutions are almost invisible as investors in the sector – the only majors to participate in 2015 were Baillie Gifford, Goldman Sachs, BBVA, BlackRock and CommerzVentures. Another concern is concentration of deals in London. With the exception of Dublin in Ireland, there is very little Fintech activity in other parts of the UK despite there being many active financial centres throughout the country.
So the picture is mixed. The vast numbers of Fintech businesses being “hatched” in various incubators in London will have to fight hard to attract investment but there are some very good pathfinders (mentioned above) to follow but more investors at Series A + are required.