Brexit crunching UK fintech funds, says industry group

Venture capital backing for UK fintech plummets by more than a quarter amid Brexit uncertainty, according to Innovate Finance report

UK voters’ decision to quit the EU has spawned a funding crunch for the nation’s fintech firms, according to new research.

Published on 16 November by leading trade association Innovate Finance, The Q3 2016 VC Fintech Investment Landscape report provides what at first glance seems a rosy assessment of backing for the UK fintech scene.

In the third quarter, it notes, the UK attracted 76 fintech deals – the highest volume outside the US, at 457 – while its funding total of $532m ranked third in the world behind a dominant China at $7.1bn, and the US at $5.3bn.

However, that is far from the full picture: venture capital investment into UK fintechs from the beginning of the year to the end of Q3 was down 26% year-on-year – and has only just reached the halfway mark of 2015’s total VC haul of $1.1m.

Following a first quarter that broadly kept pace with 2015, UK fintech investment dropped off “dramatically” in Q2, amid uncertainty over the looming referendum. With that climate persisting in the wake of the vote, funding has continued to suffer.

In a statement issued alongside the report, Innovate Finance CEO Lawrence Wintermeyer said: “While the UK still attracted a high number of deals for fintech, there’s been a significant drop in investment year-on-year to Q3 2016, possibly due to the referendum result… and the future uncertainty of the relationship between European markets and the financial services sector.”

Wintermeyer stressed: “The UK government needs to be bold and use the tools it has at its disposal, such as the British Business Bank to support the sector. This will become increasingly important with the potential loss of EU funds, such as the European Investment Fund.

“While Brexit uncertainty may continue to have an impact on investor behaviour, remaining attractive to international talent is just as important to maintaining the UK’s current position as the world’s premier fintech hub.”

In separate comments to the Financial Times, Wintermeyer noted: “Funding that did happen in the last quarter was follow-on funding for momentum companies. There was not a lot of new funding.”

Sketching out the mood of the UK fintech industry in the immediate aftermath of the referendum, he said that 30 firms had reached out to his organisation indicating that they may need help.

“We set up a post-Brexit toolkit,” he explained, “which is almost a first-aid kit, trying to align them with other venture capital and private equity investors. It was an obvious response for us to what seemed like a crisis.”

Although Wintermeyer said that none of Innovate Finance’s UK members had “made threatening statements yet” about shifting their operations out of the country, he noted: “I’m sure some people will need to move. Privately, people are not happy about the prospect of losing access to the single market and access to fintech talent.”

Scroll to top