By Jed Rose on Thursday 13 October 2022
The barriers are higher than in 2008, but this market downturn presents a unique opportunity for a new generation of fintech founders, writes Jed Rose, Partner, Antler.
The UK’s position as the global capital for fintech innovation was born in the fallout of the financial crash of 2008.
As the country faces a potential recession 14 years later, there is a sense of cautious optimism that aspiring fintech founders will find opportunities in the current economic uncertainty and create a new generation of British fintech unicorns in the process.
However, potential fintech founders starting their entrepreneurial journey in 2022 face a landscape that would be almost unrecognisable to their predecessors.
The first generation of British fintech startups leveraged a unique moment in time. Armed with technology skills and a simmering rage about the excesses of financial services, disillusioned bankers went from Canary Wharf to Old Street and unleashed the new efficiencies of digital innovation on traditional banking practices for the very first time.
The iPhone had launched the year before, and consumers were starting to adopt online banking at scale. This was a global market ready for digital disruption, and widespread redundancies after the financial crash made London an epicentre of talent.
These former bankers and emerging fintech founders also had generous redundancy packages which supplemented the lucrative salaries they had already enjoyed - giving them the freedom to operate without the practical worries of not being able to pay the bills.
The landscape in 2022 is clearly very different. Potential founders being battered by the cost of living crisis, rising inflation and mortgage rates have to make very different decisions to those creating startups 14 years ago.
However, despite arguably higher barriers to entrepreneurship than ever, I would argue that there has never been a better time to become a fintech founder in the UK. If 2008 started a British fintech revolution, then 2022 could create British fintech companies that achieve even greater global success long-term.
Despite the growing economic turbulence, we have actually seen applications from potential founders increase by nearly 20% over the past six months for our residential program where we pay people to leave their jobs to start a business. These founders are technical experts coming not from banks, but from fintech companies and scale-ups who are looking to seize this once-in-a-generation opportunity to build a new business to solve the new, significant problems facing society during a period of great uncertainty.
They represent highly skilled tech talent with first-hand experience creating products within high-growth fintech companies. Traditionally, European unicorn founders enjoyed successful careers in banks or consultancies before pursuing startup ambitions. Now, after more than a decade of growth in the European tech ecosystem, we’re seeing tech companies producing the next generation of tech founder talent.
Also, the fintech founders of 2008 were entering a market that wasn’t equipped to provide growth capital to early-stage tech companies. SEIS and EIS weren’t yet established, and there were a handful of venture capital firms across Europe.
Now, there is more capital available to early-stage founders than ever before. And, whilst the tech downturn has stopped the ‘mega rounds’ that drove tech investment to record-breaking levels in previous years, we are seeing remarkable resilience within early-stage investment activity.
The UK government’s recent announcement that expanded SEIS to further encourage investments in new UK businesses will result in more startups being formed. Institutional investors are also shifting to earlier-stage across a broad portfolio to better diversify their holdings against the valuation decreases seen with later-stage businesses.
VC firms have to deploy their capital within a set period of time, and they are looking to early-stage investments as a likely valuable source of portfolio growth during this period of economic uncertainty. If most recessions last between two to three years, then backing early-stage companies with a diversified strategy could play a valuable part of their overall portfolio strategy for the life of their fund.
Within this context, new fintech unicorns will emerge from this recession. If potential founders can embrace the risk of leaving more reliable positions during a cost-of-living crisis, then they have significant opportunities ahead.
This combination of more capital, more experienced founders, unique opportunities for disruption and low costs of establishing a business means that there is significant growth potential.
For the fintech founders that can navigate this complex economic situation, there is every opportunity for 2022 to inspire the creation of the next great fintech unicorns out of the UK.
The views and opinions expressed are not necessarily those of AltFi.