Despite jitters caused by the Brexit vote, fintech start-ups in the UK are still attracting huge investment from around the world.
“There is lots of Middle Eastern money coming into the UK,” said Devin Kohli, who is co-head of Emerging Companies at Investec. “Historically, investors in places like the UAE have always been interested in putting money to work in Britain – whether it’s in property, in equities or in other asset classes."
In addition to attracting capital from the MENA region, Mr Kohli's new fund, which focuses on early-stage fintech firms, is also garnering interest from other overseas investors.
“Many of these investors want to diversify their exposure, and they like the British fintech story," he said. "In fact, despite all the concerns over Brexit, there’s actually more money going into UK fintech now than ever before.”
Global venture capital (VC) investment for fintech in the first half of 2017 attracted $6.5 billion of VC investment with 787 deals, a 45 per cent decrease year on year, according to data compiled through Pitchbook by Innovate Finance. Though total global investment dropped, UK VC investment for fintech firms surged 37 per cent to $564 million, despite Brexit and future uncertainty between European markets and the UK’s financial services sector, according to the tradebody.
It’s easy to see the attraction. Fintech firms are innovative, daring, and growing fast, as they seek to transform the way we traditionally do banking. Their services range from mobile payment apps to digital currencies, such as Bitcoin.
Positioned as the gateway between the US and Europe, the UK has become one of the biggest centres in the world for fintech venture capital investment. A recent report by Investec found that over one third of investors into London’s fintech sector in 2017 were based overseas.
“The currency depreciation has also helped,” Mr Kohli said. “With the drop in sterling since the Brexit vote, the UK has become even more attractive for foreign investors.”
Their new Emerging Companies fund has a target size of £60-75 million. The fund is set to go live in early 2018. Mr Kohli says that they are very much on track for raising that amount, if not more, given the strength of initial demand.
One of the companies they are already invested in is Curve, a mobile wallet which combines all your existing cards onto one financial platform. It had 80,000 sign ups ahead of its launch this month, and is aiming at attaining one million users by 2019, as it taps into the growing consolidation in the payment sphere.
A second company is Monese. It allows customers to open a bank account in 120 seconds, with just a mobile phone and an ID card – making it a game-changer for expats and immigrants. “It’s specifically targeting people from the Far East and Middle East who are moving to Europe, and who want to open a bank account, without all the usual hassle,” Mr Kohli said. It launched in 2015, and co-backers include a well-known Spotify investor as well as the Korean Investment Authority.
The new fund also invests in other firms in the tech space, which fall outside the fintech definition. One of these is Velocity Black, the so-called "Uber for experiences". Set up by the team behind fine-dining app Velocity, it is essentially a concierge service reimagined for the digital age. Whether you want to swim with orcas or travel to the edge of space, this app will make it happen. “It has doubled its revenue every quarter for the past five quarters,” Mr Kohli said. “Dubai is one of the next cities that it is launching in. You can see it doing incredibly well in the Middle East.”
The USP of the new fund is that it validates every investment it makes. As Mr Kohli says: “There is no bigger endorsement than for an investor – in our case a large financial platform – to be using a product as well as investing in it. The tech has to stack up!”
All of these start-ups are headquartered in the UK. But Mr Kohli says there is potential for his fund to make local investments in the Middle East as well.
Investec already has long historical ties with Middle Eastern corporates. As a leading lender in the aviation market, it has built a strong relationship with Emirates Airlines, and Mr Kohli says that that in turn helped to form links with a lot of other corporates in the UAE.
“Many of the investors who are taking an interest in our new Emerging Companies fund will come via the Emirates connection,” he said.
“We are definitely keeping an eye on what’s happening out in that part of the world. The fintech scene in the Middle East is thriving – you have so much potential for growth.
“That is something we definitely want to keep the door open to in future.”