UK fintech investment slows, but cautious optimism ahead

The COVID-19 crisis has had a significant impact on the UK’s fintech sector, with investment falling by over a third during the first half of 2020 compared to the same period last year while 75% of smaller fintech firms are concerned about their next funding round.

Venture capital investment totalled $1.84 billion in the first half of 2020, with over 167 deals, compared to $3 billion invested into 263 start-ups funded in the first half of 2019, representing a 39% drop in capital.

However, the figure for the first six months of 2020 is up from the previous half-year period (H2 2019), when funding totalled $1.5 billion.

Over half the funding went to five companies – with 47% made up of mega deals worth in excess of US$100m (£77.7 million) – RevolutCheckout.comStarling BankOnfido and Thought Machine.

A fifth of funding in H1 went to companies receiving between $5-$20 million, with 35 fintechs together raising over $376 million. The smaller raises ($0-5m) totalled 87 companies (8% of the total investment).

“It’s encouraging to see investors are still backing fintechs, particularly those which are accelerating the digitalisation of society, said Charlotte Crosswell, CEO of Innovate Finance, which released the data.

“But we need to highlight the significant drop in the amount of capital raised during the first half of the year. This is particularly impacting start-ups, with a recent survey showing that 75% of smaller fintech firms are concerned about their next funding round.”

Venture capital firms, however, were cautiously optimistic. “Anecdotally it very much feels we are back, firing on all cylinders,” said Jay Wilson, Investment Manager at Albion VC. “Deal activity at all stages of the funnel is happening. From my conversations with other investors, I understand this is true for my peers too. 

“To that extent, Q2 2020 might get chalked up as a pause rather than a long-term inflection point in fintech funding activity,” he added.

“It is yet to be seen if the rest of 2020 sees a pick-up in activity,” added Charlotte. “But in the meantime, we must help fintechs of all sizes source the capital they need to emerge from the pandemic if our sector is to grow during the crisis.”