Our research shows that, on average, the share price at new funding rounds for more established fintech start-ups increased by over 50% during the first 6 months of the pandemic but there was also a rise in the number of down rounds, failures and exits, with some of the exits clearly being rescue deals.
In March 2020, few would have predicted the economic disruption that was about to take place due to the coronavirus pandemic. For many start-ups still losing money and needing additional funds to survive, the outlook must have appeared quite bleak. In fact, financing in the fintech sector for established companies (as opposed to those looking for their first round of funding) has been more resilient than may have been expected.
Out of the sample of 100 fintech start-ups in the UK we are tracking, 23% raised additional funds in the 6 months to the end of September 2020 and around 75% of these companies raised funds at a higher price per share than in their previous rounds. This is a slightly greater proportion of the sample raising funds than raised funds in the previous 6 months, from October 2019 and March 2020. The mean increase in share price between rounds was 55% and the median was 67%.
A few of the notable cases were:
- Yapily which provides open banking connectivity solutions raised £10m in April 2020 at an increase in share price of 229%.
- By Miles which provides flexible car insurance cover raised £15m in May 2020 at an increase in share price of 163%.
- Onfido which provides identity verification solutions raised £85m in April 2020 at an increase in share price of 102%.
There was little difference of note between financial services and technology/processing services companies in the sample in terms of the ability to raise funds and share price increase. However, 4 of the 10 companies with the highest increases in share price were in the Regtech sector perhaps indicating that investors expected the pandemic to have a minimal impact on this area.
There were more cases of down rounds or flat rounds than we have seen in the sample in any previous 6 month period. There were 3 cases of down rounds (Monzo, Wrisk and Yoyo Wallet) and 3 cases where there was little change in share price since the previous round. Monzo was the highest profile down round – raising £60m at a price around 40% lower than its previous round, though it did provide an anti-dilution share issue to some earlier investors. Even with the down round, the IRR on paper for first round investors in Monzo remained a very healthy 111%.
There were also more failures and exits in the period than in any previous 6 month period for the sample of companies. There was 1 failure, plus 5 exits. Of these exits, 4 appear to have been rescue deals because new funding was urgently needed, while the other exit was for an undisclosed value. One of the rescue deals was the Metro Bank acquisition of Ratesetter for £12m. This price compares to the £278m valuation of Ratesetter at its previous funding round in 2018.
Notes on the Sample
We are tracking the performance, financing and valuation of a sample of fintech start-ups in the UK. The sample comprises 100 companies which have all been founded since 2010 and have had at least 2 rounds of external funding. The sample represents a cross-section of fintech sectors (e.g. Paytech, Regtech etc.) and includes several of the major companies in each vertical. Data is for completed funding rounds when reported to Companies House rather than for announced transactions.