29/06/20

UK: Small fintechs have just six months of cash to remain solvent.

As published on uk.finance.yahoo.com, Monday 29 June, 2020.

Some of the smallest UK fintech companies have a cash runway — the length of time in which a company will remain solvent — of six months or less and are turning to government support as they suffer from the economic fallout of the COVID-19 pandemic.

According to a survey by industry body Innovate Finance, over three-quarters of start-ups with 25 employees or less have applied or intending to apply for one of the government support programmes designed to keep businesses on their feet amidst the crisis.

However, many flagged that these programmes are unsuitable for early stage fintechs. One of the reasons for this is they do not incorporate tax relief schemes designed to encourage investment in small, unlisted companies.

The survey also found that over 75% of smaller fintech companies are worried about their next funding round, with over 70% of respondents having received no private funding since the start of lockdown.

Smaller companies also have a great reliance on angel investors, with half (50%) receiving investment in this way.

The study showed that 60% of businesses are looking at adapting their strategy in order to survive the crisis and grow in the future, and many are considering diversifying their revenue (32%) or pivoting the business (30%).

However, 11% are looking at closing or mothballing the business.

“It’s evident that the sector faces a significant funding gap as a direct result of COVID-19. We need to act fast before it’s too late. If we fail to address this, we risk losing many companies in the fastest-growing sector in the UK economy – one that has enormous potential to transform every aspect of our lives and underpin the digital future,” said Charlotte Crosswell, CEO of Innovate Finance.

“We call for government to support companies with growth capital and keep our FinTech sector on its feet,” she added.

The report said around half of investment into UK fintech firms has come from overseas investors in the past and it remains to be seen whether this trend will continue through the year, although investors have said previously that they remained relatively upbeat.

Innovate Finance said funds flowing into UK fintech hit record levels in 2019, rising 38% to $4.9bn (£3.9bn). Investment in Q1 2020 was $1.1bn, down from $1.74bn in Q1 2019.

The study also noted that fintech has emerged as the fastest-growing sector of the UK economy, and with digital adoption of financial services quickening as a result of the COVID-19 crisis, the industry has come to the fore as a solution to financial difficulties faced by both individuals and businesses.