Fintech firms in the UK have lost billions in investment due to the COVID-19 outbreak. A recent study also shows that additional factors — unrelated to the virus — such as a lack of equity management are also responsible for the dip.
COVID-19 Takes a Toll on UK FinTech Funding
A recent study published May 15 outlines just how devastating COVID-19’s effects have been. As per the report, roughly $1.7 billion in investments have been lost by the industry as a result of the virus. The study was carried out by Qadre in conjunction with techUK.
The report also states that about 68% of respondents surveyed reported that they missed out on up to $600,000 in funding as well. Other data shows how the FinTech industry had seen a drop in funding in the last quarter, though additional factors besides COVID-19 played a role.
A decrease in purchasing power means that investors have fewer funds to invest in innovative industries like fintech. Needless to say, the effects of the ongoing COVID-19 outbreak have been felt far and wide.
Poor Equity Management Across the Board
It was noted in the study that there is a prevalence of poor equity management among fintech firms. Many are reported to make use of outdated practices and tools for this purpose, and this has resulted in lost opportunities and wasted time. These practices are cited as a key component for long-term business success and include business functions such as cap table management.
Fintech businesses, however, do not take this seriously enough as 75% of them were reported to make use of Microsoft Excel or Google sheets for this purpose. Furthermore, 23% of fintech founders reported that they did not have a good understanding of cap table management. One respondent also stated that equity management was practiced in their firm by taking down mathematics on a napkin.
Those who choose not to handle their own equity management then often have to spend significant amounts of money to outsource these needs. About a third of respondents stated that they spend almost $25,000 for these services. Despite this, 32% said that they have lost investment opportunities due to poor equity management.
The State of Fintech in the UK
In spite of the study claiming that equity management is a vital part of business, some fintech founders have expressed disinterest in it. According to one respondent, the time spent on equity and cap table management equates to lost time for fintech founders, delayed product
launches, and lost funding for the companies. This attitude might explain the lack of attention given to the management practices by founders.
The fintech industry in the U.K has already seen tremendous growth and according to the study, has not yet hit its ceiling. The country is home to over 1,600 fintech firms and the industry is worth billions. In light of the COVID-19 outbreaks, fintech innovations have even been pointed to as a solution following the institutional response to the virus.
Do you think that equity and cap table management is as important an issue as the study claims? Can the fintech industry recover post-COVID? Let us know.