In times of uncertainty, it helps to stay calm and focused on the job at hand.
At Innovate Finance, we see ourselves as the rational voice of the UK global fintech community. A big part of our job is promoting our members and fintech – not in a cheerleading capacity, but through rational analysis and sober presentation of the data.
We published third quarter fintech investment numbers this week. Globally fintech investment is accelerating: there were 839 deals, attracting $15.2bn in investment to the third quarter of 2016, outpacing the $14.9bn for all of 2015. China at $7.1bn outpaced US at $5.3bn for the first time in deal value but with a lower comparative volume of deals, 14 against 457.
The UK remains third in total investment at $532m behind the US. The second quarter saw a dramatic decrease in UK investment momentum possibly due to Brexit. The third quarter recovered modestly with $139m in investment, 7 per cent better than in the same period in 2015. Eight of the top 20 UK deals closed post Brexit, totalling $105m.
The number one question I now get asked by the media and financial analysts is “has Brexit affected investment in fintech?”, but often with a tone implying the sword of Damocles is hanging over the head of our sector, and that it’s time to get off the throne.
VC investment in fintech in the second quarter slowed by 60 per cent compared to the year previous in the run up to Brexit. However, venture capital can be very “lumpy” by quarter year on year, so I tend not to read too much into it.
Since the Brexit vote, there are some visible signs that fintech investment has slowed. “Brexit clauses” were rumoured to have delayed funding for a small number of UK fintech firms and VCs raising funds directly following the 23 June vote. Our Fintech Investment Toolkit, a sort of first aid kit offering to connect members to funding, was taken up by 30 members.
However, third quarter funding following Brexit attracted 7 per cent more than the same period in 2015 at $139m, with Innovate Finance member deals including: Crowdcube ($9.1m), Meniga ($8.2m), TransferGo ($3.3m), Moneybox ($1.8m), Huddlestock ($1.9m), CreditKudos ($.9m), RiskSave ($.2m), and Onfido (undisclosed). Member Santander Innoventures, the corporate venture capital arm of Santander, increased the size of its fund by $100m.
In 2016 seven out of the top 20 UK fintech investment deals were Innovate Finance members: TransferWise ($26m), LendInvest ($25m), Property Partner ($22.6m), Azimo ($13.4m), GoCardless ($13.0m), Crowdcube ($10.5m) and Neyber ($8.7m).
Overall, in 2016, UK fintech is not clipping at the run rate we would like to see and at the end of the third quarter we find ourselves at 50 per cent of total 2015 volume with some work to do in the final quarter.
This seems plausible in a year of such market volatility and implied economic uncertainty as a result of the referendum result, which has seen many investors sit on the sidelines. Innovate Finance member Nutmeg has done a great job kicking off fourth quarter funding by raising $37m, the first leg of its current funding programme.
However, following Brexit, the fact that fintech investment is recovering from its second quarter slowdown indicates that, while we must remain cautious, especially around the availability of seed and early stage funding, the UK fintech community is carrying on with the business at hand: raising growth capital to accelerate the delivery of innovative fintech solutions to customers.
And as for the other two questions I get asked now – “Are members leaving?” and “Will another European city become the world’s major FinTech hub?"
The answers are “No, none of our members have communicated to me they are leaving the UK” and “No European fintech hub will take over the dominance of London”. What we have here is remarkable and we will work together as a community of entrepreneurs and innovators to remain the world’s greatest fintech ecosystem.