Wednesday 21 April 2021 6:00 am

We must urgently solve the £15bn growth capital gap to keep innovation in the UK

Charlotte Crosswell is chief executive of Innovate Finance.

Cast your mind back to a decade ago, when the world of finance and banking was in disarray, and we were in midst of the worst economic disaster in generations.

Trust in financial institutions was at an all-time low, and as so often happens, technology played a central role in restoring public faith and helped to create greater transparency, clarity and efficiency in the sector.

From restructuring debt and fundraising, to financial advice and investing, technology has redefined how the financial world operates – for both businesses and consumers.

Fast forward to today, and the fintech sector that was born out of one crisis has, over the course of the past 12 months, proven itself in another. During the pandemic, fintech has fast become the backbone of personal finance for many, a source of financial stability, and a key contributor to vital business loan schemes.

The sector we’ve built over the past decade is now stronger and more robust than ever, and now is the time to invest in its promising future – starting with access to capital.

For decades, the UK has sought to move the dial in addressing the structural growth capital gap. Research we conducted last year with Deloitte and the ScaleUp Institute revealed the pandemic has doubled the UK’s long-standing growth capital gap to £15bn annually. The report highlighted the need for a long-term structural solution to the problem, with initiatives such as a national blueprint for growth, access to patient capital, and expanding the British Business Bank to enhance its regional presence.

The problem of a growth capital gap has been made abundantly clear and if we fail to make the necessary structural adjustments, we risk losing a generation of businesses in sectors like fintech that could be among tomorrow’s most successful global companies, fuelling our future economic growth.

There’s no doubt that the UK has proven to be a great destination to start a fintech business. There is an abundance of capital available for those looking to enter the market, shown by the consistently high figures of VC investment flowing into the UK.

But there remain gaps in the investment ecosystem that have the potential knock-on effect of hampering the future growth of the sector. This lack of growth and patient capital forces too many businesses to search for funding overseas, and that can subsequently impact decisions on where to expand, whether to exit at an earlier stage than desired, and where to list.

The recent Kalifa Review has created a renewed momentum towards the Fintech sector, and has restated the urgent need to address the growth capital gap.

One recommendation put forward by the Review is a dedicated fintech Growth Fund. This would be a market-led $1bn fund that would act as a vehicle to support the growth of fintech firms from Series B to pre-IPO stage.

If implemented, this would fill roughly 10% of the growth funding gap over the next five years, and act as a magnet for fintech entrepreneurs and co-investors. By making regulatory concessions for the purpose of unlocking domestic institutional capital, this would nurture a centre of excellence for UK fintech. 

Crucially, we also need to implement measures to make our listing rules more friendly for fintechs hoping to come to the public markets over the coming years – such as changing SPAC rules, reducing free float requirements, or allowing dual class share structures in our indices – to make sure the UK remains their top choice when considering a public listing.

We’ve done a remarkable job creating a robust and fast-growing fintech sector, and we now need to ensure we create the conditions for these businesses to scale, innovate and ultimately choose the UK for their growth journey.

Fintech is rightfully recognised as the crown jewel of our tech ecosystem, and we need to build on the success of the past decade by doing all we can to fuel the growth and export opportunities of the sector.

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