- UK FinTech Growth Partners LLP is pleased to announce the launch of the FinTech Growth Fund (FGF), the first specialist investment fund of its kind to invest growth-stage capital in UK FinTechs.
- FGF was envisaged in the Kalifa Review, which identified a £2bn FinTech growth funding gap in the UK. The fund is backed by Barclays, London Stock Exchange Group, Mastercard, NatWest and Peel Hunt.
- In our view, FGF’s role should be critical in ensuring that the UK remains the FinTech powerhouse in Europe.
Appointed as sole Financial Advisor to FGF and recently awarded FinTech Advisory Firm of the year, Peel Hunt hopes to bring its FinTech expertise to bear and support FGF in its mandate to help scale UK FinTechs into world-class global organisations.
UK is a highly attractive FinTech hub. The UK’s leadership in the segment is underpinned by the high demand for FinTech services, world-class talent, supportive regulation and policies, as well as strong levels of investment. The UK continues to receive large amounts of funding in the FinTech sector, with $11.1bn of capital raised in 2022. This is 3.3x the equivalent figure in France, which received the second-highest amount of capital raised in Europe. In other words, the UK alone attracted 13% of global FinTech financing in 2022 (more than the next 10 European countries combined), and remains the second-largest FinTech funding market in the world. Having said that, the Kalifa Review identified a £2bn funding gap in the UK, especially in growth-stage capital. As such, many entrepreneurs prefer to sell rather than continue to build their promising companies. In order to narrow this gap and provide attractive FinTechs with growth-stage capital, the Kalifa Review recommended the creation of FGF.
FGF to power UK FinTech scale-ups. FGF is to invest in UK FinTechs from Series B to pre-IPO, to enable them to scale and become world-class global organisations. The first deployment of capital into businesses is scheduled around 4Q23. The fund aims to undertake 4-8 investments in equity and equity-like securities each year on average, with an investment size of £10-100m per initial investment. In addition to capital, FGF is to provide strategic support to portfolio companies and give them access to the wider financial ecosystem. The fund is to be chaired by former chancellor Lord Hammond, and is backed by Barclays, London Stock Exchange Group, Mastercard, NatWest and Peel Hunt.
Peel Hunt appointed as Sole Financial Advisor to FGF. Peel Hunt is on a journey to become a centre of excellence in financial advisory for UK FinTechs. With thought-leading research pieces such as FinTech Is The New Internet and Every Day Is FinTech Day, as well as its conferences hosting exciting FinTechs from seed stage to multi-billion pound valuations, Peel Hunt has established itself as a trusted advisor in the FinTech space for many publicly listed and privately owned companies.
UK is a highly attractive FinTech hub
The UK’s position as a FinTech powerhouse in Europe remains uncontested. However, in order to ensure that the UK retains its FinTech leadership position for the decades to come, it is critical to address the £2bn FinTech funding gap in the UK identified in the Kalifa Review, especially in growth-stage capital.
You would be ‘Wise’ to ‘Checkout’ the UK FinTech scene
From Wise to Revolut, Worldpay to Checkout, the UK continues to produce world-leading, best-in-class FinTech unicorns and decacorns. The UK’s leadership in the FinTech segment is underpinned by the high demand for FinTech services, world-class talent, supportive regulation and policies, as well as strong levels of investment. According to Deloitte, the number of new FinTechs created in the UK has been accelerating at 20% pa in recent years. We believe that we are only in the nascent stages of the FinTech revolution, and that over the next decade FinTech as a sector will gain a meaningful weight in the FTSE 100.
FIGURE 1: UK has seen spectacular growth in fintechs in the last decade
Money (or UK FinTech) makes the world go round
FinTechs are ‘embedded’ in our day-to-day lives. Whenever you use your contactless card to pay for your morning coffee, verify your identity online while registering for a new service, or save for retirement, in all likelihood there is a FinTech out there making it happen. This growing ubiquity is also evident in market penetration numbers: FinTechs have 21% market share of UK SME banking customers, while cross-border PayTechs hold 8% of the remittance market.
This has happened within an astonishingly short period of time. To illustrate, just within the UK NeoBank space (a subsector of the wider UK FinTech landscape):
- Monzo is the seventh-largest bank in the UK in terms of number of customers
- One in 10 customers uses Zopa on digital open-market channels for personal loans
- Starling has 8% share in the UK SME banking market
- Tide counts one in 12 UK businesses as a customer
However, the impact of UK FinTechs is rapidly extending far beyond the home country. For instance, TrueLayer, an open banking FinTech, was founded in 2016, and now accounts for more than 50% of the open banking traffic in the UK, Ireland and Spain. What interests us is the fact that TrueLayer only entered the Spanish market in 2020, and is already the leading player there.
But FinTech in the UK also needs money to make the world go round
Despite the attractiveness of the UK FinTech sector, many entrepreneurs prefer to sell rather than continue to build their promising companies. As per a survey commissioned by the Kalifa Review, 53% of entrepreneurs say that their most likely exit would be to sell out to a foreign trade buyer, versus 17% to IPO or a further 16% to a UK trade buyer. Furthermore, the review identified a £2bn FinTech funding gap in the UK. As a result of the Kalifa Review’s findings, the FinTech Growth Fund (FGF) was born.
Ushering in a new era of UK FinTech growth
In addition to capital, FinTech Growth Fund is to provide strategic support to portfolio companies and access to the wider financial ecosystem. The advisory board is to be chaired by former Chancellor of the Exchequer Lord Hammond, and features notable UK financial services and FinTech figures. FGF is backed by Barclays, London Stock Exchange Group, Mastercard, NatWest and Peel Hunt.
The executive team leading FGF combines decades of experience in venture capital, FinTech and government. The fund’s partners include:
- Angel Issa: former global head of corporate development & strategic investments at Nomura and similar roles at BNP Paribas and Morgan Stanley
- Joe Parkin: former managing director – head of banks, digital channels and UK inorganic at BlackRock
- Kaushalya Somasundaram: former executive director and UK head of payments, partnerships & industry relations at Square
- Phil Vidler: CEO of FinTech Alliance, formerly group strategy director at Pollinate and head of global markets for HM Treasury