An analysis of Crunchbase data shows there were 46 first round equity investments in UK domiciled financial services and fintech startups in 2020, with a total value of £19m. This represents a decline from 2019 of 12% by number and 58% by value and is consistent with anecdotal evidence suggesting that seed funding has been harder to come by during the pandemic. Other sources are reporting that funding remains strong for later stage fintech ventures and this decline in early-stage funding is expected to be temporary.
Approximately 61% of these 46 financial services and fintech start-ups in 2020 were financial services businesses and 39% were technology or processing businesses (suppliers to other financial institutions). Of the financial services businesses, 75% were targeted at retail customers and 25% were targeted at business customers. The 2 most popular sectors were Payments and Lending with 10 companies in each. The 5 largest first round investments were:
- Collective Benefits (£3.3m): an employee benefits service for companies which use self-employed or gig-economy workers.
- Snoop (£3.2m): a money management app to help users manage spending and identify ways to save.
- Lanistar (£2.0m): a payment card which combines multiple cards on to one card (yet to be launched).
- Hammock (£1.0m): an account to help landlords manage their finances including collecting rent, monitoring expenses, and book-keeping.
- Wollit (£1.0m): short term loans to help with income smoothing for self-employed or gig-economy workers.
Both Snoop and Lanistar went on to raise a second round in 2020, bringing the total raised in the year to £13m for Snoop and £17m for Lanistar. This amount of funding at such an early stage and in just one year is very unusual and highlights the strong interest in scalable consumer propositions based on the recent success and high valuations of others in the space (although note that the funding for Lanistar is reported to be mainly from the family of the founder).
The 5 companies listed above are following familiar themes, and in that sense, they are not particularly innovative or radically different, though no doubt they have some innovative aspects to their approach. In the overall sample, “open banking” related investments continued to be prominent (for example Heron Data), and there was one company building on the “circular economy” theme – DIEM, a “bank of things” which turns a customer’s possessions into cash when needed.
Of the 46 first round investments in 2020, 5 were cryptocurrency or blockchain related including 2 companies offering blockchain-based, bank-like services to consumers – Fluency and Mass Financial. Given the recent dramatic rise in the value of cryptocurrencies such as Bitcoin and Ethereum, we expect the interest in this area to continue in 2021.
Notes on the Sample
The 2020 sample includes all financial services or fintech startups which are domiciled in the UK, which were founded in 2019 or 2020, and which had a first external round of equity funding in 2020. Note that in some cases founders have provided funding prior to the first external round. It excludes companies with a head office in the UK, but which are not UK domiciled. Our experience is that other sources often miscategorise transactions, typically leading to reports of a higher volume and value of activity in the sector than is actually taking place. Please contact Michael Pearson at Clarus Investments to get a copy of the full list of companies and for more details of the analysis.