A fresh U.K. investment fund, boasting up to £1 billion ($1.27 billion) of capital, has been created in order to finance the growth of financial technology businesses.This initiative, which draws support from Mastercard, Barclays and the London Stock Exchange Group, is intended to tackle the challenge of helping fintech companies achieve notable size and look towards public listings.Critics have argued that the U.K. is making it harder for fintech entrepreneurs to succeed and, as a result, they are being forced to seek listings abroad.
The U.K. has developed an investment vehicle to back the growth of financial technology companies until they can go public, in an effort to raise Britain's reputation as a fintech investment center. Financed by the likes of Mastercard, Barclays and the London Stock Exchange Group, the Fintech Growth Fund is targeting investments of between £10 million and £100 million into fintech companies, from challenger banks and payments tech groups to financial infrastructure and regulatory technology.The fund, managed by U.K. investment bank Peel Hunt, is intended to help companies at the growth stage of their funding cycle, as they seek Series C rounds and higher.This project came into being in reaction to a 2021 review ordered by the government and led by former Worldpay Vice Chairman Ron Kalifa, which investigated whether Britain's listings environment is unfavourable to tech firms."It's unquestionably a beginning," Gautam Pillai, an equity analyst at Peel Hunt covering fintech, said in an interview with CNBC Wednesday.It is a rare instance of a concentrated fund backed by major industry players, centred on fintech. While there are fintech-focused funds like Augmentum Fintech and Anthemis Group, the U.K. has not yet witnessed a fintech-specific fund shaped by a government-led plan.Because of Britain's departure from the European Union, there have been criticisms that the country puts up obstacles for fintech entrepreneurs and obliges them to contemplate listings abroad — particularly after British chip design firm Arm chose New York over a London listing.The London Stock Exchange has agreed toseveral reforms to encourage fintech firms to go public in the U.K. rather than the U.S. — a particularly urgent step."It's about finding the next Stripe, the next Worldpay, the next Adyen," Pillai said.The fund also involves Philip Hammond, the former U.K. finance minister, as an adviser.
The Fintech Growth Fund has an ambition to make its first investment by the end of the year, and could be seen as a major opportunity for financial powerhouses to gain access to skills in the development of new technologies. As tech start-ups threaten traditional banks and major financial organizations, they are looking to advance their own digital efforts, and the potential £1 billion could be a start for many of them.
The UK is second in the world when it comes to the size of its fintech industry, with 16 of the world's top 200 fintech companies based here, according to statistics from Statista. However, due to macroeconomic weaknesses and a rising rate of inflation, the industry is undergoing a period of instability, which has caused a decrease in the valuations of certain companies, such as Checkout.com, Revolut and Freetrade.
Pillai believes that, with the decrease in entry-level investments, now is the best time to launch a new fintech fund, and that some of the stronger business models will withstand the challenge and come out the other side stronger. Phil Vidler, managing director at the Fintech Growth Fund, added that the UK still remains a significant business hub, with some of the leading global venture firms having set up here.
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