A U.K. investment fund with a maximum of £1 billion ($1.27 billion) has been established to help finance growth-stage financial technology firms. Sponsors of this fund are Mastercard, Barclays, and the London Stock Exchange Group, whose purpose is to address the obstacle of scaling for fintechs and pursuing public listings. The U.K.'s choice not to ease limitations for its fintech entrepreneurs, leading them to consider out-of-country listings, has been met with grievances from certain members of the industry.
The U.K. has set up an investment vehicle to back financial technology firms in their growth stage until they can list on the stock market, as part of a push to make Britain a major attraction for fintech investments. This Fintech Growth Fund, advised by U.K. investment bank Peel Hunt, will have major players like Mastercard, Barclays and the London Stock Exchange Group investing from £10 million to £100 million into companies in sectors such as challenger banks, payments tech, financial infrastructure and regulatory technology.The venture was set up due to a 2021 review led by former Worldpay Vice Chairman Ron Kalifa to determine whether the U.K. was discouraging tech companies from listing in the country. Gautam Pillai, an equity analyst at Peel Hunt and specialist in fintech, noted that it was a good start. This is the first time the U.K. has seen such a fund that was brought about through a government-led initiative, unlike the fintech-focused funds like Augmentum Fintech and Anthemis Group.Britain has come under recent criticism for posing an obstacle to fintech businesses and making them consider listing in other nations, particularly after Brexit. In response, the London Stock Exchange has put forth a range of reforms to incentivize fintech firms to list on the London exchange instead of the U.S. – an issue brought to light as British chip design firm Arm chose New York for listing over London. Pillai commented that the aim of the fund is to find the "next Stripe, the next Worldpay, the next Adyen". Ex-finance minister Philip Hammond is also involved as an advisor.
The Fintech Growth Fund is a potential chance for major financial entities to get their hands on knowledge in the production of new technology. Major banks and monetary organizations are competing with the younger tech startups. Pillai announced that the Fund plans to make its initial investment in the close of the year. Although £1 billion isn't much when compared to what is being put into fintech and tech, Pillai said it is still a start. The U.K. is second only to the U.S. in terms of the size of its fintech industry, being home to 16 of the top 200 fintech companies, according to a Statista evaluation for CNBC.
Currently, the fintech industry is in a difficult period because of macroeconomic issues and increasing inflation, which has reduced consumer expenditure. As a result, the valuations of companies like Checkout.com, Revolut and Freetrade have declined significantly in recent weeks. Last year, Checkout.com's internal valuation decreased by 73% to $11 billion due to a stock options transfer. Schroders Capital marked down Revolut, the British foreign exchange company, by 46% meaning a $15 billion deduction. Atom Bank, a U.K. challenger bank, saw a 31% valuation decrease from Schroders. The KPMG report revealed that fintech investment in the U.K. dropped by 57% in the first half of 2023.
Pillai believes this is the ideal time to launch a new fintech fund because the entry level for investors to acquire stakes in private established companies has been greatly reduced. He remarked that despite the "bubble" in 2020 and 2021 where tech sector valuations soared, the correction has eliminated some unprofitable business models, but the stronger ones will survive and thrive. Phil Vidler, the managing director of the Fintech Growth Fund, highlighted that the U.K. is still a top business center in regards to time, location and law, and they are now reaching the point where second-time founders are starting businesses and global venture firms are setting up in the U.K.
Comments