‘Cautious’ UK investors turn to safer fintech bets

Investors are wary of startups with stronger business models that have a clearer path to profitability, a move that looks set to benefit fintech companies amid a global slowdown in venture capital funding.

According to accounting firm KPMG’s Q2 Private Enterprise report, global VC funding fell to a six-quarter low between April and June.

In the UK the value and number of deals decreased compared to the previous quarter, but according to KPMG it remains “strong”.

He identified fintech, the UK’s largest technology sector, as a “hot investment area”.

Fundraising of £507m from SumUp the biggest UK tour of the year so far, and beyond GoCardless £230m round in February.

Fintech has often been considered a safer investment than other areas of technology. That’s because they tend to scale well and often have clearer paths to profitability than growth in all cost segments, such as fast delivery businesses.

Similarly, energy technology is historically struggling to attract later stage funding due to the longer time expected to see a return.

Dry powder remains in the market

High inflation and rising interest rates have made capital more difficult, but KPMG said there is still “a fair amount of dry powder in the VC market around the world”.

However, the report said, “VC investors are expected to be more cautious with their investments, focusing on companies within their portfolios. [and] companies with strong paths to profitability”.

Going into Q3, investors in Europe are expected to continue to be cautious about investment options.

Despite significant UK fintech investments, the KPMG report highlights the distinct lack of activity from technology firms on the London Stock Exchange.

“The market is cooling down. There is no IPO going on in the UK, or indeed across Europe, there is no ECM activity either, whether equity or debt,” said KPMG partner Jonathan Boyers.

“The biggest slowdown has been in the consumer technology sector, along with the industrial sector where costs and overheads are now emerging. That said, there are still businesses where growth is outpacing inflation, there’s still a lot of VC money around, and there’s still a lot of M&A activity.”

The KPMG report follows the publication of industry body Innovate Finance UK fintech funding detailsconfirming that the sector had bucked the slowing trend in funding to secure £7.6bn in investments in the first half of 2022.

“It is vital that we keep up this momentum now. The UK is currently receiving more investment in fintech than the whole of Europe, second in the world to the US,” said Janine Hirt, CEO of Innovate Finance.

‘Cautious’ UK investors turn to safer fintech bets

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