UK’s £1bn fintech fund to challenge Silicon Valley

The United Kingdom has introduced an investment initiative aimed at supporting growth-stage fintech companies until they are ready to go public, with the goal of strengthening the country’s global reputation as a fintech investment hub.

The Fintech Growth Fund, backed by notable entities such as Mastercard, Barclays, and the London Stock Exchange Group, intends to invest between £10 million and £100 million into fintech firms across various sectors, including consumer-focused challenger banks, payment technology groups, financial infrastructure, and regulatory technology.

The fund, advised by U.K. investment bank Peel Hunt, is targeting companies in the growth stage of their funding cycle, particularly those seeking Series C funding rounds and beyond.

This initiative emerged in response to a 2021 government-commissioned review led by former Worldpay Vice Chairman Ron Kalifa, which investigated whether the U.K.’s listings environment was unfavorable for tech firms.

Gautam Pillai, an equity analyst at Peel Hunt covering fintech, described the initiative as a positive beginning and a notable commitment to a specialised fund focusing on fintech, with backing from major industry players like Mastercard and Barclays.

The fund also includes Philip Hammond, the former U.K. finance minister, as an advisor. It represents an opportunity for established financial institutions to tap into expertise related to the development of new technologies as they seek to bolster their digital capabilities.

The Fintech Growth Fund aims to make its inaugural investment by the end of the year. Despite the fund’s £1 billion size not matching the large sums deployed in the broader fintech and tech sectors, Pillai expressed that it’s an encouraging start.

The U.K. holds a significant position in the fintech landscape, ranking second only to the U.S. in terms of the scale of its fintech industry. The country is home to 16 of the world’s top 200 fintech companies.

This initiative comes at a time of turbulence for the fintech sector, with factors like rising inflation and macroeconomic weaknesses impacting consumer spending. However, Pillai believes that now is an opportune moment to launch a new fintech fund, as entry-level investment opportunities in privately-held mature companies have become more accessible.

He noted that while 2020 and 2021 experienced a “bubble” of high valuations in the tech sector, this correction has led to the strengthening and survival of more robust business models. Despite challenges, the U.K. maintains its status as a global financial center, attracting second-time founders and renowned venture firms to set up operations in the country.