A fork in the road: The future of UK fintech
A fork in the road: The future of UK fintech
Perceived changes in funding appetite from investors/funders over the past 12 months
Focus on funding While a large part of the UK fintech sector remains in growth mode, we’ve seen that funding has become increasingly challenging for some.
30%
32%
32%
36%
42%
Indeed, our research identified a polarisation of opinion on the funding environment, likely representing a flight to quality. Although two in five (43%) said funding and/or investment was now easier to access in comparison to a year ago, almost the same proportion (41%) said the opposite. Indeed, firms flagged that funders were increasingly selective about which fintech business sub-sectors they want to invest in (43%) and that investors have fewer funds available to invest (18%). Either way, in the current environment, potential investors are clearly being more cautious and are taking their due diligence seriously. The firms we spoke to believe increased scrutiny of their financial performance will be the biggest barrier to securing funding over the next six months (48%), while over a third (37%) of firms flagged increased scrutiny of their projected financial performance as an issue. Almost half (44%) cited the increased cost of capital as a challenge – which should come as little surprise after a long run of consecutive interest rate rises since December 2021. Regulation was seen as less of a challenge than anticipated, given that incoming legislation such as the Financial Services and Markets Bill is likely to add more to their plate. An inability to meet incoming regulation is viewed as a potential barrier to funding for one in five firms (20%), while almost one in 10 (8%) say their failure to comply with existing regulation is expected to be an obstacle.
Given the perceived tightening among venture capitalists (VCs) and other funders, a healthy majority of firms (78%) agreed that they need to increase their focus on profitability over market share as they look to make their business more attractive or increase their valuation. Those seeking additional funding are expected to approach an even spread of sources, including VCs (40%), public markets (38%), high street lenders (37%), private equity (34%) and specialist lenders (32%). The fact that specialist lenders placed low on the list is the likely legacy of the failure of Silicon Valley Bank in 2023. As the funding landscape changes though, public markets are being viewed as the most likely to have increased their appetite for opportunities in fintech, while high street lenders are perceived to be most cautious. Access to funding and investment over the past 12 months
19%
26%
22%
23%
21%
40%
Increased Decreased No change N/A or unsure
39%
40%
37%
34%
9%
7%
3%
4%
4%
High street lenders
Specialist lenders
Venture capitalists
Private equity firms
Public markets
Nina Mohanty is co-founder and CEO of Bloom Money. Having worked at Mastercard, Starling Bank and Klarna, she set up Bloom Money to help diaspora communities in the UK build generational wealth: “We’re a pre-seed stage company that will be looking to raise a seed round this year. The market has changed drastically since our initial fundraise in 2021. It was a six-month process then, whereas now I would expect this round to take at least nine months. “We’re pitching a vision of the future, but that’s difficult when there’s so much uncertainty in today’s macroeconomic environment. My experience, and that of other founders, is that there’s lots of capital available but it isn’t being deployed as actively or as easily as previously. “I’ve been encouraged by some of our existing investors to consider pitching in the US, the GCC, Nigeria and India as we seek new funding. That said, I do think the UK is a fertile ground for innovation and competition compared to other markets. “I’m meeting new fintech founders every week, many of whom are bringing a whole new perspective and approach to building a business. At the same time, working with the FCA is relatively straightforward compared with regulators in other countries.”
Easier
Harder
No change
43%
41%
16%
12
13
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