Brexit... again

Brexit… again

Uncertainty over Brexit has created a 33.7% decrease in UK venture capital (VC) investment for fintech firms, according to research by Innovate Finance.

Investment was down to $783 million – less than two thirds of 2015 investment of $1.2 billion. Nine of the top 20 UK deals closed post Brexit, with total investment after the referendum results of $368 million.

Lawrence Wintermeyer, CEO of Innovate Finance, says the UK’s fall is “largely attributed to the uncertainty of Brexit and geo political and macroeconomic factors”.

Wintermeyer adds: “The loss of passporting rights will hit fintech payments firms if special provisions to the single market are not negotiated upon leaving the union. However, maintaining and further improving access to global fintech talent has superseded passporting across the fintech community’s post-Brexit priorities.”

The UK has retained its global ranking in third place, behind China (first place) and the US. The top three UK deals were challenger Starling Bank at $101.0 million, iwoca (alternative finance) at $57.0 million and Nutmeg (robo advice) at $52.2 million.

According to Innovate Finance, 29% of the UK VC investment in 2016 was into alternative lending and financing, followed by challenger banks (20%), wealth management (10%) and money transfer and FX (10%).

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Looking at the bigger picture, overall global VC investment for fintech increased by 10.9% to $17.4 billion in 2016 with 1,436 deals. This level of funding surpassed the 2015 total of $15.6 billion.

China outpaced the US for the first time in deal value at $7.7 billion while US investment decreased in 2016 by 12.7% to $6.2 billion, despite being the global leader in deal volume at 650 deals.

The top three global fintech deals came from China, with Alipay, and JD Finance leading the charge and raising over $6.7 billion collectively.

Alipay raised the biggest VC round in history in 2016 at $4.5 billion. Insurtech firm Oscar led the US rounds, attracting the most funding at $400 million.

In contrast to 2015, which saw two large IPOs (Square and Worldpay), 2016 did not see any “notable” IPOs, with several companies postponing them, such as SoFi and Elevate Credit.

Exits were realised through M&A via trade or private equity. The largest exit was the merger of UK-based data and analytics company Markit with US-based IHS for $5.5 billion.

The top five global investors by number of investments were 500 Startups (39 deals), Techstars (36 deals), Startupbootcamp (30 deals), YCombinator (21 deals) and FinTech Innovation Labs (18 deals).