There are not many areas of business where the pandemic has not had an effect. We find investors, who have such a significant role in the economy, have become cautious as a result of it. It has caused venture capital investment in UK fintech firms to slump by nearly 40 per cent in the first half of this year, with investors mainly using their cash to fund well-established firms amid the coronavirus crisis.
According to figures from UK fintech industry body Innovate Finance, there were 167 deals worth $1.84 billion during the first half of 2020.
This is a 39 per cent fall in the same period last year, with over half of the funding going to big companies in deals worth over $100 billion.
Digital banking app Revolut raised $500m in February, while payments start-up Checkout.com followed its $230m series A fundraise in 2019 with another $150m in June. Starling Bank and Onfido have also raised significant sums this year.
Despite the slump in fundraising, Innovate Finance said that demand for fintech investment in the UK remained high, with the first half figure 26 per cent higher than the amount raised in the final six months of 2019. However, CEO of Innovate Finance, Charlotte Crosswell, said that the drop in fundraising had impacted early-stage companies.
“We need to highlight the significant drop in the amount of capital raised during the first half of the year,” she said. This is particularly impacting start-ups, with a recent survey showing that 75 per cent of smaller fintech firms are concerned about their next funding round.”
An investment manager at Albion VC, Jay Wilson, said: “Anecdotally it very much feels we are backfiring on all cylinders, deal activity at all stages of the funnel is happening. From my conversations with other investors, I understand this is true for my peers too.”
The UK Treasury launched a review of the £7 billion sector back in July, claiming the COVID-19 crisis had shown up a need to foster the “widespread adoption” of fintech. The probe will seek to ensure that UK fintech “has the resources to grow and succeed”.
On a matter of diversity, it appears that companies with more diverse boards outperform their rivals. According to a report by the consultancy, New Street Group, the share prices of FTSE250 firms with more gender-diverse boards have fared better than others during the coronavirus pandemic.
Shares in the top 25 FTSE250 firms by board diversity suffered a 24 per cent decline in their shares in the first half of this year, compared with a 29 per cent decline in the closest comparable portfolio of FTSE250 firms with a less diverse board.
“There is a clear economic case for making sure that boards are diverse. This ensures different voices are amplified and companies benefit from having a much broader range of skillsets and experience,” said Doug Baird, CEO of New Street Group.
The insurance companies Direct Line and Lancashire Holdings were cited as examples of firms with diverse boards whose share prices fell less sharply than rivals.
Direct Line’s board is 40 per cent female, while Lancashire’s is 37 per cent female, according to the Hampton-Alexander Review. According to New Street Group, Direct Line’s share price was shown 9.17 per cent during the first half of the year, while Lancashire’s shares fell just 1.79 per cent, compared with a 23.4 per cent drop in FTSE250 share prices among comparable firms with less diverse boards.
Baird suggested that increased flexibility in working structures brought about by the pandemic could see women ascending to and retaining more senior positions.
“Company directors should be considering how work practices may be adapted post-coronavirus to make workplaces more inclusive to women,” he added.
(The writer is our foreign correspondent based in the UK).
Andy Jalil
andyjalil@aol.com
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