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Three-quarters of small UK FinTechs at risk from funding collapse

FinTech

Before 2020, the start-up economy seemed to be booming, with investors willing to invest money at new projects in record rates

Almost three-quarters of smaller UK FinTech companies have a cash runway of half-a-year, while even more are worried about their next funding round. Most are considering diversifying their revenue to combat this, while one-tenth are looking into winding up their business altogether.

Before 2020, the start-up economy seemed to be endlessly booming, with investors willing to throw money at new projects in record rates, in the hope of backing the next unicorn – a start-up worth over $1 billion – especially in the world of finance. Financial technology (FinTech) funding has continued to boom in the UK, with the country seeing investment in the sector at the start of 2019 almost doubling on the levels seen over the first six months of 2018.

FinTech is technology which aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. However, while in times of relative economic stability there was a big appetite for such things, as investors scale back on big projects during the current financial downturn, this particular bubble seems to be bursting. Underlining the fragile nature of smaller start-ups, a new study from Innovate Finance has found that nearly 70% of smaller UK FinTech companies have a cash runway of just six months or less.

Compounding this, the survey of 126 FinTech start-ups – of whom 61% had fewer than 25 employees – 77% said they are worried about their next funding round. In order to boost income and preserve their brittle existence, most firms are currently looking to change tack in the coming months. The vast majority of respondents haven’t received funding since the start of the Coronavirus lockdown. Of those that have, the majority came from Angel investment.

Around 60% confirmed they were adapting their strategy to survive the Covid-19 pandemic and its resulting economic shockwaves, with 32% of those saying they would diversify their revenue, and 30% saying they would ‘pivot’ the business to stay afloat. Around 11% of those adapting their strategies said they may ‘mothball’ their business altogether for the foreseeable future, or closing outright.

Small businesses across the industrial gamut have availed themselves of Government support in the UK to survive the current downturn, and FinTech start-ups are no different. Three-in-four of the firms surveyed told Innovate Finance that they had applied for Government support either through Bounce Back loans or furloughing.

However, Charlotte Crosswell, CEO of Innovate Finance, said that many FinTech companies have been unable to take advantage of current support schemes due to their growth profile.

Urging action, Crosswell explained, “It’s evident that the FinTech sector faces a significant funding gap as a direct result of Covid-19,” she says. We need to act fast before it’s too late. If we fail to address this, we risk losing many companies in the fastest-growing sector in the UK economy. We cannot turn our backs on the start-ups now or we will pay the price later down the line.

Important:

This article is for information purposes only.

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

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