Despite a challenging global market, the UK stands out as a top destination for fintech investment, a new report has revealed. But the gender investment gap widens.
To showcase its 2022 Investment Landscape Report, industry body Innovate Finance hosted a panel discussion and Q&A in London’s Guildhall in collaboration with the City of London Corporation.
The ‘Capital Investment in UK FinTech in 2022: Insights and Trends’ session served up industry musings from fintechs and investors on their capital raises and investments in 2022. They revealed their challenges as well as the opportunities, current investment trends and what to expect in 2023.
Following a record-breaking year in fintech investment in 2021, last year saw a global drop in investment. Globally, fintech attracted $92billion in venture capital (VC) in 2022, a noticeable decline on $130billion invested into the sector in 2021.
Venture funds deployed $23.3billion into earlier stage global fintech compared to $31.5billion in 2021 and $50.5billion into later stage, compared to $82.4billion in 2021.
However, seed investment rounds performed better than expected, netting $7.5billion in 2022, a large increase compared to the $5.8billion raised in 2021. Growth and expansion private equity deals in 2022 attracted $10.7billion, equalling 2021.
The UK bagged $12.5billion of fintech VC investment of which $8.9billion was invested just in the first six months of 2022. This is an eight per cent drop on 2021 investment from 2021 but still cements the UK’s second position in the global ranking, the closest contender to the USA and outpacing India in third place.
In 2021, female-founded and female-led fintechs represented nine per cent of all VC activity in UK fintech. Sadly in 2022, this investment plummeted to $616million across 39 deals, representing just 4.9 per cent of total investments in UK fintech.
“There’s massive opportunities beyond those areas where we’ve seen a lot of fintech funding already go in”
Views on 2023
Tim Levene, CEO, Augmentum Fintech, took a “glass half full view” predicting that the first half of this year will be weaker but with a pickup in the second half of this year.
“There is still a significant amount of dry powder in the European venture capital ecosystem. We can’t confuse dry powder with drawn down capital because that is committed capital where a lot of it hasn’t been drawn down.
“But ultimately investors need to invest and can’t sit on their hands forever. There is a real incentive but there is a lot of waiting to see how the economy plays out and how the growth plays out over the next 12 months in particular. So I think investors are looking internally but fundamentally high quality fintech businesses are going to get funded and there’s absolutely no doubt that capital base is there for sure but will be deployed over a longer period and valuations will be more moderated.”
Kevin Chong, co-founder of Outward VC, remains largely ‘reassured’ by figures in the Innovate Finance report but agrees that the slowdown will continue for the first half of 2023.
“The numbers are very reassuring given given how challenging it was last year and in comparison to other regions. Investors still very much adopting a wait and see approach, trying to figure out where valuation levels are and which areas to focus on and I don’t expect huge improvement certainly in the first half.
“For the second half, I’m a lot more optimistic provided we don’t get any more geopolitical shocks.”
Axe Ali, partner, EY, suggests there are areas in fintech where innovation is still in its infancy, such as insurtech and wealthtech.
He said: “There are pockets of maturation within the fintech but there are areas of whitespace that are yet still to be explored. Insurtech has seen funding grow by 70 per cent and wealthtech funding is up by 110 per cent. These are still industries which aren’t disrupted by the use of fintechs both in the B2B proposition and on the B2C side.”
“So I think there’s massive opportunities beyond those areas where we’ve seen a lot of fintech funding already go in.”
Problem of diversity
Janine Hirt, CEO of Innovate Finance, says: “Our numbers around investment to female founder or female led fintechs in the UK are quite saddening. There’s clearly something we need to do, not just when it comes to gender diversity, but much broader diversity, whether that be racial diversity, LGBTQIA+, neurodiversity, or even socio economic diversity.”
Chong commented: “I think it all starts with tracking and reporting and hope we can do more of that. If you don’t track you don’t know if you’re increasing so I think right now there’s a great lack of data. We know that it’s a problem but it’s actually very difficult to to quantify as there is just not enough data on it at a granular level.”
The Fintech Times’ key takeaways from today’s session
- 2021 activity should be removed from all statistics
- In 2022 many venture capitalists lost their heads and lost sight of fundamentals
- In 2023, hot sectors and trends should be approached with caution
- 2023 will be slow to deploy capital, but will improve in Q3
- 2023 will provide the private markets with a ‘healthy correction’
Fintech Week London has launched an Industry Review to address explosive growth and rapid decline in funding and valuations, chaired by Susanne Chishti.