The UK has faced criticism from some in the industry that it has created barriers for fintech entrepreneurs, forcing them to consider overseas listings.
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The UK has launched an investment vehicle to support early-stage fintech companies until they go public, in a bid to boost Britain’s global image as a fintech investment hub.
supported by others MasterCard, Barclays and London Stock Exchange GroupThe Fintech Growth Fund aims to invest between £10m and £100m in fintech companies, ranging from consumer-focused challenger banks and payments technology groups to financial infrastructure and regulatory technologies.
The fund, recommended by UK investment bank Peel Hunt, seeks to support companies in the growth phase of their funding cycle seeking Series C and higher stages.
The venture was created in response to a government-commissioned inquiry in 2021 led by former Worldpay vice-president Ron Kalifa, which examined whether the UK’s listing environment was attractive to tech firms.
“It’s definitely a start,” Gautam Pillai, an equity analyst covering fintech at Peel Hunt, told CNBC on Tuesday.
This is a rare commitment to a specialized fintech-focused fund backed by mega-industry players. While there are fintech-focused funds such as Augmentum Fintech and Anthemis Group, the UK has yet to see a fintech-focused fund emerging from a government-led strategy.
Britain has faced some industry criticism that it has created barriers for fintech entrepreneurs, forcing them to consider listings abroad – particularly since the country’s exit from the European Union, which has somewhat overshadowed the UK’s status as a global financial hub.
The London Stock Exchange has committed to a series of reforms to encourage fintech firms to float in the UK rather than the US – a move that is particularly relevant following British chip design firm Arm’s decision to ditch its London listing for New York.
“It’s about finding the next Stripe, the next Worldpay, the next Adyen,” Pillai said.
The fund also has Philip Hammond, former UK Chancellor of the Exchequer, as an adviser.
The move could also be an opportunity for financial heavyweights to gain experience in developing new technologies. Major banks and financial institutions are trying to advance their digital ambitions, they face competition from young technologists.
Pillai said the goal is to make the Fintech Growth Fund’s first investment by the end of the year.
While the £1bn pales in comparison to some of the larger sums being invested in fintech and technology more broadly, Pillai said it was “definitely a start”.
He added that the UK is a hotbed of fintech innovation, but lags behind the US when it comes to the scale of the fintech industry. According to an analysis by independent research firm Statista for CNBC, the UK is home to 16 of the world’s top 200 fintech companies.
The fintech industry is facing a period of turmoil as rising inflation and macroeconomic weakness dampen consumer spending. The valuations of companies such as Checkout.com, Revolut and Freetrade have fallen sharply in recent months.
Last year, Checkout.com’s internal valuation fell 73% to $11 billion due to the vesting of stock options.
Revolut, the British currency services giant, has been written down 46% by shareholder Schroders Capital – a write-down of $15 billion, according to a filing. UK rival Atom Bank had its valuation cut by 31% by Schroders.
UK fintech investment fell by 57% in the first half of 2023, according to KPMG.
Pillai said now is the right time to launch a new fintech fund because the entry level for investors to take positions in private companies has been severely reduced.
“From a pure investment point of view, there is no better time in the history of fintech to start a fintech fund.”
While 2020 and 2021 will see a “bubble” of high prices in the tech sector, Pillai believes that this correction “killed some very weak business models, stronger business models will survive and thrive.”
“The UK still has an active investment market, we still have one of the world’s leading financial centers – regardless of what happens in the last 10 years,” Fintech Growth Fund managing director Phil Vidler told CNBC. in the interview.
“A hub for business – time and place and law and so on – those fundamentals are still here, and similarly we’re now reaching a point where second-time founders are setting up companies and being presented as the best of the big, global venture firms in the world, right here in the UK is being built”