The UK has devised a novel solution for a funding gap: more funding.
In a bid to strengthen the country’s financial sector, up to £1bn (€1.2bn) has been allocated to a new investment vehicle for fintech firms.
Named the FinTech Growth Fund, the scheme will invest predominantly in companies between Series B and pre-IPO, with the aim of scaling them into global leaders. The first capital deployment is scheduled for the fourth quarter of this year.
The fund plans to make an average of four to eight investments every year, each between £10mn (£11.7mn) and £100mn (€117.1mn). All of them will be minority investments for equity and equity-linked securities.
As well as capital, the fund will provide strategic support for the portfolio companies. Barclays, NatWest, Mastercard, the London Stock Exchange Group, and Peel Hunt are backing the scheme, while former chancellor Phillip Hammond is heading the advisory board.
“I championed our vibrant fintech sector throughout my term as chancellor and have long believed its success is vital to maintaining the UK’s role as a global financial services centre through the early adoption of new technologies, products and services,” Hammond said in a statement.
The new fund was launched in response to the Kalifa Review, which the British government commissioned to report on the country’s fintech sector.
The review identified an annual funding gap for growth-stage fintech of around £2bn. It recommended creating a £1bn growth fund to fill the gap and sustain the ecosystem.
“This fund also helps address a key challenge facing our fintech scale-ups,” Nicholas Lyons, the Lord Mayor of London, said. “They frequently rely on financing from international investors which leads to domestic fintech listing in other countries, with IP and jobs leaving our shores.”
The venture launches at a tough time for UK fintech. Amid rising interest rates and inflation, total investment in the sector dropped from $39.1bn (€35.8bn) in 2021 to $17.4bn (€16bn) in 2022, according to KPMG. The new fund will hope to stimulate a rally for the industry — and the entire financial services ecosystem.