The UK’s fintech sector will see a wave of acquisitions this year as cashed-up banks and investment firms will swoop in to buy struggling firms on the cheap, a top venture capital chief has predicted.
Tim Levene, chief of London-listed venture vehicle Augmentum Fintech, said that banks had failed to properly digitally transform over the past decade and would now be looking to shortcut innovation with a flurry of fintech dealmaking.
“I look at the balance sheets of the banks and the insurers and the asset managers and they’re sitting on a lot of cash, a huge amount of cash,” he told City A.M. in an interview.
“I would say the vast majority of the hundreds of billions that have been deployed and digital transformation [by traditional finance firms] has been wasted, and so they have to acquire, and acquire sensibly. I think we will see more [deals], because valuations have relatively dropped,” Levene said.
High-growth fintech firms suffered sharp falls in valuations last year as venture capital investment dried up amid sharp interest rate hikes and a shuttered exit market.
Prices slumped across nearly every stage of fundraising in 2022, with particularly sharp falls in mid- and late-stage valuations. Series D and later funding rounds saw valuations fall by 27 per cent in the third quarter of the year, bringing them down to nearly 2020 valuation levels, a recent report from data firm CBInsights found.
Levene said that the downturn in funding was likely to continue in the first quarter of this year as VC firms sit out turbulence and big institutional investors, who poured into the market in a funding frenzy in 2021, withdraw.
“I think you’ve seen a bit of a pullback from sovereigns, from hedge funds, the big names who have the view that you can hack venture capital and invest billions in a short period of time to spread your bets and pick the winners.” he said. “I think [that] has been proven to be a failure.”
Fintech funding in the UK tumbled eight per cent last year to $12.5bn amid a global fall in funding, data from industry body Innovate Finance found last week.
Augmentum was hit by the slump in the market last year, swinging to a pre-tax loss of £1m for the half-year to the end of September from a profit of £30.5m a year prior.