Venture capital investments into UK fintech has dropped by a third over the last year with blame being placed on the UK’s vote to leave the European Union.
A report by Innovate Finance and Pitchbook shows investment from venture capital funds fell 33.7 per cent in 2016 to $783m (£632.7m) compared to $1.2bn in 2015. Total investments following the referendum were $368m.
Fifty four per cent of investments came from UK-domiciled venture capital funds.
David Hall, managing director of YFM, which offers VCT and private equity products, says fintech investors did “pause for thought” in mid 2016.
But he argues UK fintech will remain a draw due to being “cheek by jowl” with one of the leading global financial centres and the innovative tech community.
James Livingston, a partner at VCT and EIS specialist Foresight Group, says that their experience differs from the market statistics, particularly in London.
“We’ve recently seen a wealth management platform, peer-to-peer lending software business and blockchain style trading security software business come to market with what seems a good level of domestic venture capital interest,” Livingston says.
“Some of the steam is perhaps coming out of the peer-to-peer phenomenon with a shake out of the sector appearing likely as some of their portfolios start maturing.”
But Lawrence Wintermeyer, chief executive of Innovate Finance warns the loss of passporting rights and immigration concerns could hit fintech.
“Maintaining and further improving access to global fintech talent has superseded passporting across the fintech community’s post-Brexit priorities.”
Over 30 per cent of Innovate Finance founders and chief executives are non-British, Wintermeyer says, and a significant part of the workforce is made up of EU nationals.
Globally the report found fintech investment increased 10.9 per cent to $17.4bn, compared to $15.6bn in 2015.
Wealth management offerings accounted for 10 per cent of UK venture capital in the fintech space.
That includes £30m raised by Nutmeg in November, which Chancellor Philip Hammond said confirmed the UK’s position as the global fintech capital.
Alternative lending and financing accounted for 29 per cent of investment and challenger banks accounted for 20 per cent.
The US also saw investment decrease in 2016 to $6.2bn, down 12.7 per cent on the previous year. It was surpassed by China with deal value at $7.7bn.