Assembly Capital Partners' Michael Baptista says liquidity is urgently needed in the fintech sector.
You have your hands full, so I will keep this short. I’m a British venture capitalist; the firm I founded, Assembly Capital Partners, is a FinTech specialist. I am lucky enough to work with some of the UK’s most exciting growth firms. I want five minutes of your time because I believe you can secure the best UK Fintech firms — despite the COVID-19 crisis — and have the taxpayer share in the upside.
Fintech has an important role in the long-term evolution of UK financial services. Still, I am no booster. Fintech has had more than its share of hype. It is, however, a technology-driven sector with huge growth potential and one where, for many reasons, the UK is — and can remain — a leader. Fintech needs help — not a handout. Without that help, many otherwise viable firms with strong growth prospects will fold; some obvious winners will likely be funded by US firms and re-locate.
In normal times, we could expect a small number of highly innovative UK Fintechs to scale significantly — to the benefit of British citizens, industry, services and a re-shaped financial services industry itself. Gains would include efficiency, financial inclusion and mass customisation of products. A healthy, market-driven process would also see 70%+ of Fintechs fail with others becoming sound, mid-sized businesses.
This market-driven triage has now been overwhelmed. Baby and bathwater are both being tossed. Government lacks the time, information and capacity to pick winners; nor should it write a blank cheque. So what should it do?
A transparent program of risk- and reward-sharing between government and specialist private sector expertise can maintain the UK’s competitive advantage — and benefit the UK taxpayer. The good news is that the overall sum needed is relatively small — well below £500m.
Fintech firms now need a longer runway — which means additional funding. This funding has to come via an instrument that can absorb losses and that allows public and private money to share risk and reward. In other words, equity. This should be channelled through venture firms which specialize largely or solely in UK Fintech (to which any government money would be dedicated).
The UK Government has a ready channel — the British Business Bank (BBB). Current processes at the BBB are fit for ‘peacetime’ — e.g., due diligence that lasts between one to two years. Its staff and operating mandate must be liberated; speed matters. Excellent terms for the taxpayer are possible — including preferred payouts. VC partner salaries and investment performance for participating funds should be transparent to the general public. Fintechs with the greatest potential would get the longer runway they need without a build-up of moral hazard. VCs would share the risk of failure; the taxpayer would share the rewards of success. I am happy to provide a more detailed blueprint once the principle has been accepted.
Of course, a number of measures aimed at SMEs, in general, will also help– easing payroll taxes, faster payment of Inland Revenue investment allowances and permitted slower payments of payroll and other taxes. An immediate priority is help with rental payments. SMEs, in the interests of public health, are not using their offices. They, and their landlords, need help.
The preservation of capacity and competitiveness in the UK economy — whilst minimizing moral hazard — is a huge challenge. Success or failure will shape British life for decades. Many of us are here to help.
Michael Baptista is founding partner at Assembly Capital Partners. The views and opinions expressed are not necessarily those of AltFi.