Venture capital finance for UK fintech drops by third in 2016

Uncertainty in run-up to Brexit vote stifles venture capital flow – but funds picked up again in third quarter, according to Innovate Finance

UK fintech firms attracted $783m of venture capital (VC) last year – but that apparently robust sum was more than 33% down on the previous year’s total, according to a report from trade association Innovate Finance

Major hauls for Starling Bank, iwoca, Nutmeg, SETL and Bill Front formed the top five UK deals, which started at $35m in value. But of that group, only Starling Bank cracked the global top 20, netting $101m.

Investment in the second quarter slowed dramatically compared with the same period of 2015, which many fintech insiders attributed to uncertainty in the run-up to the EU referendum.

Some 46% of VC flow into UK fintech last year came from non-domiciled entities residing in Europe (19%) and the US (18%).

All told, there were 1,436 deals around the world in 2016, with a combined value of $17.4bn: 10.9% up on 2015’s total. That global rise demonstrates that the UK is out of step with broader trends.

Other key findings that emerged from the report include:

  • Three ‘mega-rounds’ contributed to a significant rise of VC investment into China last year: Allpay ($4.5bn – the biggest-ever round in fintech history); Lufax.com ($1.2bn) and JD Finance ($1bn).
  • The most active global investment source was seed fund and accelerator 500 Startups, with 39 investments
  • 500 Startups’ closest rivals in the accelerator space were Startupbootcamp with 36 investments, and Techstars with 30.
  • There were no notable fintech initial public offerings around the world during 2016. The top global exit was UK firm Markit’s $5.5bn merger with US fintech IHS.

Innovate Finance CEO Lawrence Wintermeyer said: “China and the US dominate fintech investment with a combined $13.9bn of the total $17.4bn: 80% of the global VC raised in 2016, and the top two-ranked future foreign investment sources for UK fintech.

“While UK venture investment is down… Q3 funding rebounded. Nine of the top 20 deals completed in the six months following the referendum, with the UK retaining its global ranking in third place.”

Turning to the aftermath of the vote, Wintermeyer explained: “The loss of passporting rights will hit fintech payments firms if special provisions to the single market are not negotiated upon leaving the union.

“However, maintaining and further improving access to global fintech talent has superseded passporting across the fintech community’s post-Brexit priorities.”

He noted: “Over 30% of Innovate Finance fintech founders and CEOs are non-British – with many employing European staff.”

Find the full report here.

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