Access to capital remains a challenge for UK FinTech

February 20, 2020 | Investment

Written by FinTech Alliance

Access to capital remains a challenge for UK FinTech

There are currently over 1,600 FinTech firms in the UK, with the figure expected to double by 2020. According to the State of the Nation report, 82% of incumbents expect to increase FinTech partnership in the next three to five years. For anyone seeking to start or scale a FinTech, there are many issues to consider and, despite the UK’s thriving landscape, access to capital remains a key challenge.

The UK benefits from amazing talent and innovation in the FinTech space. The country is home to four out of 10 global universities, enjoying a highly educated workforce. It also benefits from a great entrepreneurial spirit – in 2018, more than 660,000 new businesses were created – and a strong investment landscape which saw FDI reach £1,336.5bn in 2017.

The UK government has recently promised to unlock over £20bn investment over 10 years through the British Business Bank, and British Patient Capital was launched in June 2018 as a £2.5bn investment vehicle for innovative startups in the UK.

The blend of highly skilled workers, a supportive regulator, tax incentives and government initiatives has created what we might call the ‘perfect storm’ for FinTech growth. So why are FinTech startups still facing problems when raising capital?

A survey commissioned by Plusnet in 2018 found just under a third of UK small business owners see access to finance as their biggest challenges.

One issue is the misconception that startups can live on capital alone. FinTechs need support, mentoring and other resources in addition to investment. This is why incubator and accelerator programmed have proved so vital – with research showing an ‘accelerated company can raise 44% more funding.

Furthermore, building a successful FinTech isn’t just coming up with a great product to solve a problem and fill a gap in the market. Following this, building relationships with investors is a key step in the process, particularly in the world of financial services which even in the digital age remains massively based on trust.  

Solving a problem is of course important – investors are increasingly looking for a purpose, especially a social one, as opposed to an excuse to use fancy tech – and identifying your market remains key, but a key question Forbes poses is “Have the founders been referred to the investor by a trusted colleague?” – illustrating that cold calling or emailing over a pitch deck simply will not do. While many FinTech founders tend to be young, it’s also key to show you have a qualified and experienced management team to build those relationships.

In terms of the pitch deck itself, this remains a key bugbear: an investor is unlikely to trawl through pages of documents because if you can’t explain your idea concisely, the chances are you don’t fully understand it. Realistic financial projections and a strong understanding of how you’ll use any investment and the potential risks involved are a must.

While for many FinTech founders, a Seed funding round won’t be their first rodeo, 48% of startups and small businesses across the UK find it difficult to raise investment – according to Plusnet’s research – and most are unsuccessful at their first attempt. 35% said pitching to investors was ‘daunting’ and 27% said it took two to four attempts. 29% of business owners said it took months to get their pitch investment ready.

While the UK is ripe for investment and has been going to great lengths to attract foreign investment as well as encouraging domestic support for startups, there are clearly still barriers for FinTech startups as they seek to get their ideas off the ground or scale across a changing landscape. It would seem that the answer is to build up a vast network and gain the trust of as many investors as possible – and when you get the opportunity to meet the right person, it pays to be well prepared.

That’s why we’ve launched our Investment Series, in partnership with the Department for International Trade. It includes a workshop on how to build your pitch deck so it’s up to scratch, various panels on how to raise from Seed right up to Series B and beyond, and – perhaps most vitally – the chance to meet and network with investors face to face.

The series culminates in a Pitch Day during UK FinTech Week which allows FinTechs, armed with knowledge and the “dos and don’ts” from previous events, to pitch in front of investors and engage in one-to-one meetings.

To get involved in the event, email info@fintech-alliance.com with the subject line ‘FTA DIT Investment Series’.

 

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