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First the good news. According to research published by Tech Nation – the organization charged with nurturing rapid growth in Britain’s innovation economy – investment in financial technology companies has soared over the past few years.
Published this month, the U.K. Tech on a Global Stage report finds that investment in “fintech” totaled £4.5 billion between 2015 and 2018, helping to cement Britain’s position as a world leader.
Fintech matters because it is one of the segments within the wider technology arena that plays to Britain’s economic strengths. For better or worse, the financial sector accounts for a disproportionate percentage of U.K. gross domestic product. With the City of London and other financial centers, such as Leeds and Edinburgh, on their collective doorstep, British fintech businesses are in close proximity to both customers and a deep well of industry expertise. Perhaps it’s not surprising, then, that investment levels are running so high.
But – and this is a very big but – the historic figures published by Tech Nation may hide a growing degree of circumspection on the part of investors in the face of deepening uncertainty. And while fintech is undoubtedly a hot sector, it probably can’t escape the impact of growing investor caution.
Consider the background noise. Since U.K. voters opted narrowly to leave the European Union an ever-deepening sense of political crisis has engulfed the country, culminating, this week, in news that the Prime Minister has been effectively forced out of office. The economy has held up remarkably well over the past few years but cracks are beginning to show. Car companies are cutting back investment, there has been a rash of retailer closures on British high streets, and this week we saw British Steel falling into administration. In the financial sector, at least some City of London jobs are being moved overseas. None of this is good for investor confidence. Then pan out to look at the wider world and threat of a trade war between the US and China is also affecting sentiment in quite a big way.
And according to Jared Jesner, founder of rapidly growing currency trading platform WeSwap, this background uncertainty is affecting the ability of businesses in the fintech sector to raise cash from VCs or move to an IPO.
WeSwap is enjoying impressive growth. The company is a consumer-facing fintech venture that offers customers a means to buy foreign currency at cheaper rates than would be available through traditional outlets. This is achieved by enabling travelers moving in opposite directions to swap their available currencies. In the last year, the company traded £100 million in such swaps compared with £70 million the previous year. In 2019, it is moving into the Asian market for the first time.
We are on the path to profitability,” says Jesner. “Our aim is to build a profitable business – not just a scaleup.”
WeSwap raised £8 million in a 2017 Series B round and planned an IPO on the London’s Alternative Investment Market last year. It was then that Jesner noticed investor doubts creeping into the market.
Talking To Investors
“We were talking to investors and what we found was at the IPO stage we were talking to people who took time to assess the business and who also appreciated the business,” he says.
As he sees it, that was a good thing. The funds made their assessment and saw the company as a good long-term investment prospect. But the mood changed. With global uncertainty running high, the amount of money that could reasonably be raised through the IPO fell and WeSwap pulled the plan. “It was all about timing,” says Jesner. “Investors became very cautious because of concerns about Trump and Brexit.”
WeSwap subsequently raised £4m from VC investors – money that will fund its expansion plans and a continued path to profitability, but as Jesner sees it, times could get tougher for new arrivals in the fintech sector. “I think startups and particularly those with no revenues as yet will find hard,” he says.
But Jesner is ultimately optimistic about the IPO route.WeSwap’s aim is to find “the right investors,” and he sees a natural alignment with funds that only invest in small caps.
This is, of course, the experience of just one relatively early stage company but it reflects data published earlier this year by investment analysis company Beauhurst, which found that overall levels of investment in U.K. startups fell back in 2018, from peaks in 2017.
The economic uncertainties will doubtless pass, but for a while at raising capital is likely to be just a bit more difficult.
May 25, 2019 at 05:59AM
Forbes – Entrepreneurs