After a whirlwind decade that has seen more than 1000 startups launched and go on to raise over £11 billion between them, the UK fintech scene is starting to mature, with investment in early-stage rounds slowing and the number of companies founded declining as investors focus their bets on established players that are expected to make it big, suggests new analysis.
Claurus Investments has researched all of the 1100-plus fintech companies founded in the UK since 2009 that had received at least one round of funding by the end of 2020.
These firms have raised £11.4 billion between them and have a current total valuation of £86 billion, employing 57,000 people.
Clarus estimates that just 150 of the total 1100 venture capital backed companies scrutinised will create any meaningful value. States the report: "We should not be surprised if the others disappear."
Digging deeper, pre-season A funding peaked in 2018 at £265 million, while the annual number of new companies founded in 2019 and 2020 was less than half that of in the years 2015 to 2018.
Claurus suggests that this indicates that the rate of new innovation has slowed with the focus of investors shifting to players seen as long-term winners, which are now attracting huge later-stage rounds, such as Revolut's recent £580 million raise.
Meanwhile, UK fintech startups are showing good staying power: For the companies at least three years old, 60% are continuing and have received funding in the last three years. Another 18% are operating but have not received funding in the last three years. Just 15% have closed, with the rest having seen a exit of some kind.
Total revenues for the startups covered hit £5 billion in 2020, although profitability remains elusive, with combined losses after tax estimated at £2.2 billion. In fact, less than five per cent of the firm are profitable, while 80% actually increased their losses in the latest reported accounts.
Although exits have been limited, Claurus says that, on paper, investors are seeing strong returns. The IRR for a cohort founded in 2015 is estimated at being 75% to 80%.