Coronavirus: Nearly £2bn of UK fintech investment lost so far

UK fintechs could have lost out on nearly £2bn of investment as a result of the Covid-19 pandemic, if a recent survey sample reflects the wider industry.

A survey of fintechs, carried out by Qadre, found that 68% said they had lost out on funding with the average amount lost £1.2m. If this trend is matched across the UK sector, the total investment lost could be as much as £1.9bn.

In 2019, according to industry body Innovate Finance, $4.9bn was raised by UK fintechs, which was over a billion higher than the previous year.

But Covid-19 has put the brakes on. “The UK has one of the world’s most successful fintech markets, but company founders are facing unprecedented economic headwinds with Covid-19 at the eye of the storm,” said Nick Williamson, CEO at Qadre.

Globally, fintech funding levels are down to those not seen since 2017, according to research by CB Insights. The firm said investors expect merger and acquisition activity in 2020, as valuations decline and funding dries up.

Fintech entrepreneur Matthias Kroener, who set up and later sold Fidor, one of the earliest digital challenger banks, said there will be consolidation because fintech is a very young industry with vulnerable companies that have taken on high costs up-front.

He said Covid-19 could accelerate the arrival of the next iteration of the fintech industry.

It’s not just fintechs struggling to get investment, but startups across all sectors. A recent survey of Tech London Advocates’ network of 10,000 people in startups showed that 49% believe the coronavirus crisis is a threat to their existence, and 53% are establishing business models for the next quarter focused on survival.

Tech London Advocates founder Russ Shaw said the focus for many at the moment is saving, conserving and managing cash.

Shaw agreed that the post-Covid-19 period could see the beginning of a new era of startup growth. He said the sector could emerge from the crisis stronger after digital services, such as contactless payments, videoconferencing and online shopping, become more mainstream. He recently told Computer Weekly: “There’s some underlying optimism that when we come out of this, the digital and tech world, and the things it can offer, are going to become even more important and critical.”

The UK government announced the Future Fund on 20 April to support startups and loss-making companies.

The £250m fund, which started this month, will provide loans to UK-based companies, subject to at least equal match-funding from private investors.

However, Computer Weekly has revealed that of the UK’s roughly 30,000 startups, only 5,000 will be able to access the loans, because to be eligible, enterprises must be an unlisted UK registered company and have raised at least £250,000 in equity investment from private, third-party investors in the past five years.

This means some 83% of UK startups will not have access to the fund. And although the government is separately pledging £750m of targeted support for the most research and development (R&D)-intensive small and medium-sized firms, which will be available through Innovate UK’s grants and loan scheme, this will only reach a small number of firms.