Fintech start ups help UK top Europe's VC funding league

By Roger Baird on Tuesday 22 January 2019

Alternative LendingDigital BankingSavings and Investment

Young British businesses attracted $7.7bn from venture capital firms last year.

The UK topped the European league for venture capital funding last year, with fintech firms accounting for a sizeable chunk of the cash available for start ups.

British young companies attracted $7.7bn from venture capital firms in 2018, which is just under a third of the $24.4bn raised by all young businesses across Europe, according to a report by professional services firm KPMG.

This puts investment in fast growth businesses in Britain at more than 2.6 times the level invested in France, and 1.5 times level seen in Germany.  

But the survey warned that 2019 “is likely to be a challenging year” in the UK. It said Brexit uncertainty may stall the flow of venture capital cash coming into the country as investors “grow more cautious, waiting to see whether a plan materialises”.

The report, called Venture Pulse Q4 2018, said in Britain financial technology “was a key sector for investment during 2018 with $1.6bn invested in UK fintech”.

It added in the final three months of last year $502.7m was invested in the UK sector. Challenger bank Monzo, which attracted $110.6m, and peer-to-peer lender Zopa, which pulled in $78.2m, were among the biggest funding rounds in the period.  

Consolidation coming

The survey pointed to Funding Circle’s £1.5bn flotation last October, and even though the peer-to-peer lender’s valuation has dragged, it said the move might prompt other mature fintech firms to “exit over the coming quarters, whether through initial public offering, or merger and acquisition.”  

However, the report found that UK venture capital investment eased in the final quarter of 2018 as stalling Brexit negotiations concentrated investor’s minds.

It said: “London’s financial industry continues to wait and see what will happen following the UK’s withdrawal from the EU. As the deadline approaches, it is likely that any decline will be due to investors pressing pause and waiting to see the ramifications of 2019.”

Across the world, venture capital hit a record $254bn in 2018, with the well-funded US market continuing to grow and accounting for more than $130bn of this figure.

James Alexander, co-founder and former chief executive of Zopa, said the coming year would see consolidation among fintech start-ups.

Hype cycle

Alexander said: “I believe there will be a shift in activity through 2019, towards funding the growth phase of the emerging winners alongside early consolidation moves, for example big banks acquiring either capability, as well as emerging winners.”

He added: “The counter to this will be increasing numbers of fintech failures from those left behind or whose propositions were never sufficiently compelling in the first place. I believe we can expect huge competition as we move beyond the hype cycle."

The KPMG survey added that tech-related start ups were likely to dominante funding this year.

It said: “Looking ahead to 2019 autotech – whether autonomous vehicles, alternative energy vehicles, or ride hailing – is expected to continue seeing strong investment, with fintech, healthtech and proptech likely to join this success.”

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