Innovate Finance Report on VC Investment into Fintech: Up Globally, Down in the UK

Innovate Finance is out with a report on global Fintech investment. According to their numbers, global venture capital into Fintech jumped by 10.9% to $17.4 billion in 2016 with 1,436 deals. Meanwhile, VC Fintech investment dropped by 33.7% in the UK. Global Fintech investment surpassed 2015, a year that saw $15.6 billion invested in Fintech.

Unsurprisingly, China led the pack. China “outpaced” the US with $7.7 billion in investment versus $6.2 billion for the US. China was helped by three “mega-rounds” including the largest Fintech investment ever – Alipay’s $4.5 billion. China beat the US for the first time in deal value while US investment decreased in 2016 by 12.7% to $6.2 billion, despite being the global leader in deal volume at 650 deals.

The top three global Fintech deals came from China including Alipay, and JD Finance raising over $6.7 billion collectively. Insurtech firm Oscar led the US rounds, attracting the most funding at $400 million. The UK attracted 173 deals in 2016, the highest volume outside the US at 650. Of the top global deals, only one company was from the UK – Starling Bank, which secured $101 million in funding.

The UK remains in 3rd place for total investment behind China and the US with $783 million. The decline in UK Fintech investment was described as “dramatic”. In 2015, UK Fintech investment registered $1.2 billion. The report pointed to Brexit uncertainty has the cause behind the dip in VC investment, although 9 of the top 20 deals closed post Brexit ($368 million).

During 2015 there were two large Fintech IPOs (Square and Worldpay). In comparison, 2016 did not see any notable Fintech companies IPO, with companies postponing them, such as SoFi and Elevate Credit Inc. Exits were

Exits were via mergers and acquisitions. The largest exit was thUK-based of UK based data and analytics company Markit with US based IHS for $5.5 billion. The UK firm Markit led the global M&A charge with a $5.5 billion merger with US-based IHS.

Lawrence Wintermeyer, CEO of Innovate Finance, said the UK activity rebounded in Q3 following the European referendum.

“The loss of passporting rights will hit Fintech payments firms if special provisions to the single market are not negotiated upon leaving the union. However, maintaining and further improving access to global Fintech talent has superseded passporting across the Fintech community’s post-Brexit priorities. Over 30% of Innovate Finance Fintech founders and CxOs are non-British with many employing European staff. Attracting further investment to UK Fintech remains the number one priority,” explained Wintermeyer.

Some other data points of note include:

  • 29% of UK investment in 2016 was into alternative lending/financing, followed by challenger banks (20%), wealth management (10%) and money transfer and FX (10%)

  • Nine out of the top 20 FinTech investment deals in the UK were Innovate Finance members: iwoca ($57.0 million), Nutmeg ($52.2 million), Transferwise ($26.0 million), LendInvest ($25.0 million), Property Partner ($22.6 million), Digital Shadows ($14.0 million) Azimo ($13.4 million), GoCardless ($13.0 million) and Crowdcube ($10.5 million)

  • 46% of investment into the UK was from non-domiciled VCs, largely coming from Europe (19%) and the US (18%). Starling Bank, iwoca, Nutmeg, SETL, and BillFront rounded up the top five FinTech deals in the UK, all over $30 million in deal size.

  • The top five global investors by number of investments were 500 Startups (39 deals), Techstars (36 deals), Startupbootcamp (30 deals), YCombinator (21 deals) and FinTech Innovation Labs (18 deals).

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