The U.K. has been criticized by some in the industry for creating obstacles for its fintech entrepreneurs, leading them to consider listings overseas. However, in an effort to enhance Britain’s reputation as a fintech investment hub, the country has established an investment vehicle dedicated to supporting growth-stage fintech companies until they are ready to go public.
The Fintech Growth Fund, supported by major players such as Mastercard, Barclays, and the London Stock Exchange Group, aims to invest between £10 million to £100 million in various types of fintech companies, including challenger banks, payments tech groups, and regulatory technology firms. Peel Hunt, a U.K. investment bank, is advising the fund and focusing on companies in their growth stage seeking Series C funding and beyond.
This initiative is the result of a government-commissioned review led by former Worldpay Vice Chairman Ron Kalifa, which examined the U.K.’s listings environment and its attractiveness to tech firms. It is a significant step, as it represents a specialized fund for fintech backed by major industry players, unlike other existing fintech-focused funds.
The U.K. has faced criticisms for creating barriers for fintech entrepreneurs and pushing them towards listings overseas, especially after the country’s exit from the European Union. The London Stock Exchange has committed to implementing reforms to encourage fintech firms to go public in the U.K. instead of the U.S.
The Fintech Growth Fund also benefits financial heavyweights by providing them access to expertise in the development of new technologies, as they face competition from emerging tech-oriented companies. The fund aims to make its first investment by the end of the year.
Although the £1 billion allocated to the fund may seem modest compared to the vast amounts invested in fintech globally, it is a significant start, according to Gautam Pillai, an equity analyst at Peel Hunt. The U.K. is an important hub for fintech innovation, ranking second only to the U.S. in terms of the scale of its fintech industry. It is home to 16 of the world’s top 200 fintech companies.
However, the fintech industry is currently facing challenges due to rising inflation and macroeconomic weakness, resulting in a decline in valuations for companies like Checkout.com, Revolut, and Freetrade. Despite this, Pillai believes it is the perfect time to launch a new fintech fund, as investors now have better access to privately-held mature companies.
While the tech sector experienced high valuations in recent years, Pillai argues that the correction in valuations has weeded out weak business models, leaving room for stronger ones to thrive. The U.K. still maintains its position as a leading financial center, attracting second-time founders and global venture firms.
Overall, the establishment of the Fintech Growth Fund represents a significant step for the U.K. in supporting its fintech ecosystem and maintaining its status as a global fintech hub.
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