Brexit blip? UK fintech funding rebounded at the end of 2016

Martin Stead NutmegNutmegMartin Stead, Nutmeg’s CEO.

LONDON — Investment into British financial technology businesses rebounded in the fourth quarter of 2016, suggesting the slowdown earlier in the middle of the year may have just been a temporary blip caused by Brexit.

Figures from CB Insights, a company which tracks venture capital investment, said investment into fintech companies increased by 122% between October and December in 2016, while the number of deals rose by 33%.

$US173 million (£138.5 million) was invested across 16 deals in the fourth quarter, with notable funding rounds including app-only bank Tandem’s £35 million investment from House of Fraser and Nutmeg’s £30 million cash injection from Hong Kong financial advisory Convoy.

However, investment into venture capital-based fintech business in the UK almost halved when you look at the whole of 2016, dropping to $US494 million (£395.7 million) from $US962 million (£770.5 million) in 2015.

The fourth quarter uptick in funding follows three straight quarters of declining deal numbers and a huge drop off in funding between the end of 2015 and the first quarter of 2016. Here’s how it looks in context:

While the 2016 fourth quarter funding figure is still below that of 2015’s, the rebound in activity will come as a relieve to both the government and many in the sector.

Germany’s flourishing fintech sector overtook Britain’s in the middle of last year and CB Insights warned in its third-quarter report that Brexit had caused investors to “pause” investment in the UK. Industry data provider Beauhurst recently warned of a “worrying drop” in UK startup investment in 2016, suggest a broader slowdown.

Tuesday’s data from CB Insights suggests that, for fintech at least, the investment drop was indeed just a pause, rather than a more general pullback.

The government has earmarked fintech as a key growth market for UK financial services in the post-Brexit era. City Minister Simon Kirby told Business Insider earlier this month: “Green finance, Islamic finance, fintech — these are all growth areas that we’re at the cutting edge of.” Chancellor Philip Hammond also called the UK a “global fintech capital” when Nutmeg raised its most recent round of funding.

While UK funding activity rebounded in the fourth quarter, CB Insight’s data suggests slowing momentum in Germany. While 5 of the largest fintech funding rounds in Europe were German companies, both the number of deals and the total invested declined for the second straight quarter. $US34 million (£27.2 million) was invested across 7 deals, down from a peak of $US175 million (£140.1 million) invested across 15 deals in the second quarter of 2016.

Fintech companies across Europe raised $US1.2 billion (£960 million) in 2016, according to CB Insights’ data, down from $US1.6 billion (£1.28 billion) in 2015. Globally, venture capital-backed fintech companies raised $US12.7 billion (£10.1 billion), a 13% fall on 2015.

 

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