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Page 1: UK FinTech Venture Capital Investment Thriving...FinTech deals. UK venture capital deal volume split Source: PitchBook, Workthere UK venture capital deal volume (£bn) Source: PitchBook,

UK FinTech Venture Capital Investment Thriving

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Page 2: UK FinTech Venture Capital Investment Thriving...FinTech deals. UK venture capital deal volume split Source: PitchBook, Workthere UK venture capital deal volume (£bn) Source: PitchBook,

Introduction

x2028%of all UK VC investment

is in FinTech£2.1bn invested and 234 VC FinTech deals done

FinTech VC Investment has grown nearly 20 times in 10

years

The FinTech sub-sector has come a long way over past decade. In 2010, FinTech accounted for just 4% of UK VC investment and it now accounts for 28%. It’s already a record year for both UK VC investment overall and specifically FinTech, with the former reaching £7.5bn in the first 9 months of the year and the latter reaching £2.1bn.

We have seen some chunky deals in 2019. In February, Softbank invested £339m in OakNorth, a bank that provides financing solutions to growing businesses. Then, only 11 days later, Iwoca raised £150m in its sixth VC round. In May, Checkout.com signed a deal worth £177m that put its pre-money valuation at £1.35bn. Any one of these deals is larger than every single VC penny put into every single FinTech firm in 2010.

The areas within FinTech that this money is being poured into varies. The top deals this year have supported firms that offer business loans, digital payment platforms, mobile banking, digital wealth management, international payment platforms and loyalty platforms, to name a few. There have also been some smaller PropTech, InsurTech, cryptocurrency/blockchain and artificial intelligence FinTech deals.

UK venture capital deal volume split

Source: PitchBook, Workthere

UK venture capital deal volume (£bn)

Source: PitchBook, Workthere

0%10%20%30%40%50%60%70%80%90%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018 20199M

Non-FinTech FinTech

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016 2017 2018 20199M

Non-FinTech FinTech

Top 10 FinTech deals in the UK by deal volume:

Source: PitchBook, Workthere, Note: this includes only deals that occurred in the UK in the first 9 months of 2019

Company

1. OakNorth

2. Checkout.com

3. Iwoca

4. WorldRemit

5. Monzo

6. Sonovate

7. Starling Bank

8. GoCardless

9. Soldo

10. Nutmeg

Deal volume (£m)

339

177

150

137

113

110

75

58

48

45

Page 3: UK FinTech Venture Capital Investment Thriving...FinTech deals. UK venture capital deal volume split Source: PitchBook, Workthere UK venture capital deal volume (£bn) Source: PitchBook,

Case study: Revolut

Revolut, which offers a range of digital banking services, started its journey at the Level39 tech accelerator in Canary Wharf in 2014 with just a handful of hot desks. A year later, the company took a private office at Level39, employing seven people by the end of 2015.

Throughout 2016, 2017 and 1H18, Revolut completed four rounds of VC fundraising, including a £177m raise in April 2018. With fresh capital, a revenue increase of £13m in 2017 to £58m in 2018 and a hiring spurt, in July 2018 Revolut moved into a conventional office with around 300 desks in The Columbus Building, again in Canary Wharf.

Co-founder, Nikolay Storonsky, shared his thoughts on their offices:

“We will remain in London. I don’t see a lot of reasons why companies would need to leave the capital. There are some particular businesses in trading that because of regulation need to be based where their clients are but I just don’t see Brexit as a big issue.” He added, “I think Canary Wharf is a decent place – we looked at many others. East London is very cool.”

Location of UK FinTech company HQs Location of London FinTech company HQs

Source: PitchBook, Workthere, Note: this includes only deals that occurred in the UK in the first 9 months of 2019

Source: PitchBook, Workthere, Note: this includes only deals that occurred in the UK in the first 9 months of 2019

There’s no ‘right’ or ‘wrong’ time to move from a flexible office to a conventional office and our analysis supports this. Startups are not as homogenous as larger corporations. Some move into a conventional office when they are just 20 people, whilst some wait until they have many hundreds of employees. In fact, an increasing number of large corporations are moving in the other direction: from conventional to flexible office space. Companies such as HSBC, Microsoft, Starbucks, BP, Bank of America and Shell have all moved a portion of their workforce into flexible offices.

The office journey for FinTech startupsThe reasons for choosing a flexible office are plentiful. A company’s office plays a key role in attracting and retaining talent, and flexible offices are often viewed as desirable places to work. In addition, flexible offices, and coworking spaces in particular, harbour an environment that encourages collaboration and idea sharing. Certain office environments can even help improve productivity. There are also numerous valid reasons as to why companies choose to move into conventional offices, particularly once they reach a certain size. Security and cost often play a role.

London Edinburgh ManchesterCardiff Birmingham Other

Shoreditch West End CityMidtown Canary Wharf SouthbankOther

Drivers of FinTech VC growthFinTech VC investment this year is nearly 20 times larger than ten years ago. So what’s driving this growth? Largely the digitalisation of financial services. The way in which the financial services firms interact with their customers has changed drastically. In the past, local bank branches were financial hubs. Now, with easy access to user-friendly apps and websites, a lot of money management for both personal and business use is done via smartphones or computers. This will only increase further as the younger generation, that have grown up with smartphones, constitute a greater portion of the adult population.

There are also many more ways to make payments nowadays. Do you use your debit card? Credit card? Cash? Apple Pay? PayPal? Mobile app? Gift card? These transactions need to be swift, secure, transparent and reliable. Not only that, but they also need to be

Source: PitchBook, Workthere, Note: this includes only deals that occurred in the UK in the first 9 months of 2019

integrated into, and recorded by, the systems of all parties, which is a highly complex process and third-party FinTech firms are often required.

Where are these companies based?

London is undoubtedly the heart of the UK FinTech scene. Our analysis of the FinTech companies that have received VC funding in the UK this year shows that 81% of them are based in London. 2% are located in Edinburgh and another 2% in Manchester.

Within London, East London is a clear favourite for FinTech firms, with 38% being based in Shoreditch, the City and Canary Wharf combined. For Shoreditch specifically, the number is 22%, which shows that FinTech firms are not exclusively clustered around Old Street

Roundabout, as is sometimes perceived. In fact, 20% are based in the West End and 8% in Midtown. A study by Gazel and Schweinbacher (Entrepreneurial FinTech Clusters, 2018) found that FinTech companies located within a cluster have a lower risk of failure, but a higher chance of being acquired.

For FinTech companies based in flexible offices, we estimate that the average price paid per desk in London is £600/month. This is a 16% discount to the average desk price of £715, likely due to few FinTech companies being based in Mayfair, home of the highest desk prices in the capital.

Page 4: UK FinTech Venture Capital Investment Thriving...FinTech deals. UK venture capital deal volume split Source: PitchBook, Workthere UK venture capital deal volume (£bn) Source: PitchBook,

Cal LeeHead of Workthere +44 (0) 20 7409 [email protected]

Get in touch for further information

Jess AldersonGlobal Research+44 (0) 207 409 4561 [email protected]

Workthere.com | Savills.comWorkthere is a business by Savills focused solely on helping businesses find flexible office space, whether that’s a serviced office, co-working or shared space.

Matthew FitzgeraldCross Border Tenant Advisory - EMEA+44 (0) 207 299 [email protected]

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