The first half of 2020 has seen investment in the UK's fintech sector slow by more than a third as venture capitalists (VCs) chose to either keep hold of the money or invest in more established companies amid the global pandemic.
Figures released by fintech trade body Innovate Finance showed that UK venture capitalists invested $1.84bn in the first six months of 2020, a 39% decline on the same period in 2019 which saw more than $3bn invested in 263 startups.
Furthermore, over half of the money $1.84bn was invested in just five companies. Digital banking app Revolut netted the biggest investment with a $5bn funding round completed in February, before the onset of the pandemic hit the UK. Payments startup Checkout.com, Starling Bank and Infido also raised more than $100m with Thought Machine completing the fifth largest deal at $83m.
However, Innovate Finance CEO Charlotte Crosswell has issued a note of catuous optimism stating that the H1 performance is still up by 26% on the second half of 2019 but that concern remains over the smaller startups that have lost out in the funding decrease.
“It’s encouraging to see investors are still backing fintechs, particularly those which are accelerating the digitalisation of society," said Crosswell.
"But we need to highlight the significant drop in the amount of capital raised during the first half of the year. This is particularly impacting start-ups, with a recent survey showing that 75% of smaller fintech firms are concerned about their next funding round.
“Whilst early stage conversations suggest capital is ready and waiting to be invested, there is still a lag in actual funding. It is yet to be seen if the rest of 2020 sees a pick up in activity, but in the meantime, we must help fintechs of all sizes source the capital they need to emerge from the pandemic, if our sector is to grow during the crisis”, said Crosswell.
Meanwhile VCs appear to be hopeful that funding is due to pick up imminently. “Anecdotally it very much feels we are back firing on all cylinders, deal activity at all stages of the funnel is happening," said Jay Wilson, investment manager at Albion VC.
"From my conversations with other investors I understand this is true for my peers too. To that extent Q2 2020 might get chalked up as a pause rather than a long term inflection point in fintech funding activity.”