£1B fintech fund to address UK’s £2B funding gap.

£1B fintech fund to address UK's £2B funding gap.

UK Launches £1bn FinTech Growth Fund to Boost Financial Sector

In a bold move to strengthen the country’s financial sector, the UK has allocated up to £1bn (€1.2bn) to a new investment vehicle specifically targeted at fintech firms. This initiative, known as the FinTech Growth Fund, aims to invest primarily in companies between the Series B and pre-IPO stages, with the goal of scaling them into global leaders. The first round of capital deployment is set to take place in the fourth quarter of this year.

One of the key objectives of the FinTech Growth Fund is to bridge the funding gap for growth-stage fintech companies, an issue highlighted by the Kalifa Review. This government-commissioned review recognized an annual funding gap of around £2bn and recommended the creation of a £1bn growth fund to address this gap and sustain the fintech ecosystem.

The fund intends to make an average of four to eight investments per year, ranging from £10mn (£11.7mn) to £100mn (€117.1mn) each. These investments will predominantly be minority investments for equity and equity-linked securities. In addition to capital, the fund will provide strategic support to the portfolio companies, offering a comprehensive package to help scale and thrive in the competitive fintech landscape.

Several prominent institutions are backing the scheme, including Barclays, NatWest, Mastercard, the London Stock Exchange Group, and Peel Hunt. Former Chancellor Phillip Hammond is also leading the advisory board for this ambitious project. Hammond, a strong advocate for the vibrant fintech sector during his tenure as Chancellor, believes that its success is crucial for maintaining the UK’s role as a global financial services center, enabling the early adoption of new technologies, products, and services.

A defining characteristic of the FinTech Growth Fund is its commitment to keeping fintech talent and innovation within the UK. Nicholas Lyons, the Lord Mayor of London, highlights that many fintech scale-ups often rely on financing from international investors, resulting in domestic fintech companies listing in other countries, causing intellectual property and job loss. The FinTech Growth Fund aims to counter this challenge by providing local funding opportunities that incentivize fintech companies to remain in the UK, preserving intellectual capital and employment within the nation.

The launch of the FinTech Growth Fund comes at a challenging time for the UK fintech industry. With rising interest rates and inflation, total investment in the sector has seen a significant decline, dropping from $39.1bn (€35.8bn) in 2021 to $17.4bn (€16bn) in 2022, as reported by KPMG. The introduction of this new fund endeavors to stimulate a much-needed rally for the industry, revitalizing the entire financial services ecosystem.

In conclusion, the UK’s £1bn FinTech Growth Fund represents a remarkable opportunity for the country’s financial sector and fintech companies alike. By addressing the funding gap and offering strategic support, this initiative aims to propel growth-stage fintech firms into global leaders. With esteemed institutions and key industry players supporting the scheme, there is optimism that the fund will invigorate the fintech industry, ensuring the UK’s position as a prominent global financial services hub.