Our research on fintech start-ups in the UK for The Fintech Financing and Performance Report reveals how important angel investors are for the development of the sector. In around 85% of cases we have studied, angels are involved in the first external round of financing. In 35% of the cases where angels are involved, venture capital investors or accelerators (such as Seedcamp or Techstars) were also participants. Examples of fintech start-ups which did not involve angels and relied solely on venture capital investors are TransferWise (international payments) and Starling (digital banking).

The returns for angel investors can be substantial in some cases, although mostly these are on paper since there have been few exits yet in fintech. In the case of Funding Circle (alternative lending), the original angel investors have seen their investment increase by a factor of over 100x since 2010. Habito (mortgage broking), which has now been through 4 rounds of funding since 2015, has provided a 36x increase in value on paper to the angel investors.

The average amount invested at the first round in our sample of fintech start-ups was £688,000, giving the first round investors an average of 26% of the company. The average has declined slightly over time, particularly since the very early fintech start-ups of 2010, and it is now more common for first round investors to own less than 20% of the company at first round. For example, in 2010 Market Invoice (alternative lending) raised £330,000 in its first round and gave up 39% of the company. In contrast, Neos (insurance) raised £176,000 for just 9% of the company in 2016.

The number of angel investors varies widely. In the case of Habito in 2015, there were just 3 angels at first round, all of them experienced fintech entrepreneurs. In the case of Atom Bank (digital banking) in 2014, there were around 20. Of course, many of the angels participating in fintech are not professional investors or sector experts, and are often family, friends and former colleagues. In some cases there is clearly a lead angel investor which the company might publicise to boost its fundraising – a recent example being Urban Jungle (insurance) where the seed round was led by the former UK chief executive of Prudential.

Fintech is a very diverse overall sector with sub-sectors like lending, payments and insurance requiring very different skills and experience. We have not noticed the same angels appearing in multiple start-ups and it appears that it is difficult for a single investor to build up a reasonable size portfolio within a specific sub-sector or even within fintech more generally.

Crowdfunding also has a role to play in fintech start-ups although typically this seems not to be for first round funding. Well-known cases such as Monzo (digital banking), Tandem (digital banking) and Revolut (international payments) have used crowdfunding. Some have used it more than once. Revolut’s last funding round, in July 2017, included nearly £4m of crowdfunding (out of a total round of £55m) at a post-money valuation of around £250m.