The 2015 UK FinTech Investment Landscape : Is Corporate Venture Capital the new smart money in FinTech?

In 2015, UK VC investment rose by 35% to $901 million led by large funding rounds from Innovate Finance members Funding Circle, Transferwise, WorldRemit, eToro, RateSetter, Azimo, The Currency Cloud, MoneyFarm and Seedrs, according to Pitchbook.

There were a total of 72 VC deals done in the UK, second only to the US, with a total of 860 deals done globally at an investment of $12.5 billion, up only slightly on the 2014 VC investment of $12.3 billion. 2 of the top 20 global VC deals in FinTech involved UK companies Funding Circle ($150 million) and Atom Bank ($125 million). 

Top funding rounds were financed by Seedcamp, Index Ventures, Techstars, Augmentum, Balderton, Anthemis and GLI, demonstrating an increasing depth of bench in UK and European venture capital firms.

Over 60% of the UK VC investment in FinTech has been in the Peer-to-Peer, Alternative Finance and Payment & Remittance segments, with Challenger Banks pushing investment volume to over 74%. The balance of investment is spread across Wealth Management (Robo-Advice), Capital Markets, Data Analytics, Crowd Funding, and a number of emerging categories.

Much of the investment in FinTech to date has been in segments with no, or light regulatory ‘friction’. The P2P segment voluntary submitted to the FCA to be regulated, and the new round of Challenger Banks have been part of a more ‘expedient’ regulatory process led by Treasury thinking. With the ‘future of advice’ and ‘blockchain’ flirting on the periphery of regulated products, it is likely that regulation will consume greater capital investment in future FinTech.

FinTech IPOs of note include Lending Club ($8.9 billion) and OnDeck ($1.3 billion) both in December of 2014.  These stock prices have more than halved in 2015, in line with the banking sector as a whole, the worst performing sector to date, where a number of European bank stocks have more than halved in the past year. WorldPay's stock price has defended its ground. Its $7.7 billion listing on the London Stock Exchange in October 2015 is an important signal to UK FinTechs on their IPO journey from Level 39 to the LSE, and was the biggest tech IPO of 2015.

One of the big trends in 2015 is investment in FinTech by financial institutions in incubators, accelerators, labs, talent, partnerships, digital M&A, and corporate venture funds. A couple of years ago, entrepreneurs in the community were looking for introductions to VCs. Last year, they were interested in introductions to institutions. Investment sums in FinTech and innovation in financial institutions are difficult to find in the public domain, though estimates of $1 billion in investments over 3-5 year programmes have been mooted by industry insiders.

The continuing rise of the Corporate Venture Capital (CVC) fund has seen a number of funds earmark sums starting at $100 million using the institution’s balance sheet. Santander InnoVentures, a $100 million fund headed by Mariano Belinky, is leading the charge in Europe with investments in Ripple, MyCheck, Digital Asset Holdings, iZettle, Cyanogen & Kabbage. CommerzVentures which makes individual investments of €2 to €10 million has made investments in iwoca, eToro, GetSafe, Mambu, Marqeta. HSBC allocated up to $200 million for early stage FinTech, AXA Strategic Ventures has set up a fund of €200 million, and Aviva Ventures has earmarked £100 million.

In the US, Citi Ventures makes individual investments of $500,000 to $5 million and has investments across big data, payments, behavioral finance and security including jumio, Linkable, Square, Betterment, TradeIT, and LiveNinja. CME Ventures has made investments to date in Ripple, Digital Asset Holdings, IQBit, Digital Currency Group, Dwolla, Fortscale, Nervana, Powerlytics and Wickr.

A number of investment targets across CVCs are in the payments, data and analytics, identity, and infrastructure segments, likely reflecting a deeper understanding of the requirement and or urgency for institutional legacy systems replacement. This is best evident in investments in Distributed Ledger technologies, commonly referred to as the Blockchain, unheard of by most bankers in February of last year and was talk of the town at Sibos 2015 in Singapore by September.

The rise of these investment funds raises the question of whether Corporate Venture Capital is the new smart money in FinTech.