Additionally, the compound annual growth rate (CAGR) of 10.7% experienced by firms valued below £75 million between 2014 and 2016 was supplemented with a further investment of £1.2 billion for this bracket in 2017. As for companies valued above the £75 million figure, a further £877.1 million has been committed across eight deals.
Overall, the figures indicate a big jump in the average deal size for fintech firms in the UK. Q3 2017 however is a standout segment, enjoying nearly £1.2 billion invested in UK-based fintech companies – the largest total investment in a single quarter to date.
In this quarter alone, a total of £638.6 million was invested in deals valued below £75 million, a 90.8% increase on the £333 million invested in deals of this size in Q2 2017. The number of deals was also a record high, with five more deals closed in Q3 2017 than in the same segment last year.
Proportions of total deals
Further data that indicates the UK fintech sector is growing is the reduced number of deals closed valued at less than £1 million, down from 23.5% in 2014-2016 to 21% in the first three quarters of this year. While deals valued at £1-£5 million remained stable this year, large deals valued at over £5 million rocketed over to 40% of total deals closed. FinTech.Global cites this growth as a, “sign of maturity,” of UK fintechs. Additionally, the share of deals valued above £20 million nearly tripled in comparison to last year.
Top-performing fintech firms
Investment in the UK’s top-10 fintech firms accounted for nearly 46.7% of the total investment between Q1 and Q3 2017. The largest of these deals went to Gryphon Insurance in June, valued at £179.6 million. Of the top 10 deals, four went to lending firms – Prodigy Finance, 1st Stop Group, Neyber and Funding Circle, valued at £457.5 million. Of the remaining six deals, two went to challenger banks Tandem and Atom, two went to enterprise software companies Options Technology and Darktrace, and the final two went to insurtech companyies Gryphon Insurance and Revolut.
Ed Molyneux, CEO and Co-Founder of cloud-based accounting firm FreeAgent, told DIGIT: “I think fintech success is being driven by the convergence of two powerful waves. Firstly, the nearly ubiquitous use of smartphones and the associated levels of comfort in using mobile and cloud services. And secondly, a new era of open data, including developments such as OpenBanking and PSD2.
“A whole new class of products and capabilities are on the horizon in this relatively untapped market, only some of which we can imagine today! That’s what’s getting investors excited.”
Fintech Scotland’s Mickael Paris, said: “The fintech sector is growing really fast in the UK and in Scotland in particular. This is not a surprise as, very often, fintech innovation is triggered by market and regulatory changes. It would be fair to say that the financial sector is going through some of the biggest changes it’s had to face in a very long time. Open Banking, Pension Dashboard, PSD2, GDPR and last but not least Brexit are just a few examples of what financial providers have to face.
“It is a perfect storm and I don’t think we’ve even seen the tip of the fintech iceberg yet. We’ve seen digitisation and innovation, we’ve not seen real disruption that technologies such as blockchain could bring to the UK. This is a very exciting time and investors surely feel the same when looking at the potential of some of our most innovative firms.”