On the anniversary of the UK government review aimed at spurring investment in its fintech industry post-Brexit, the vertical is seeing record amounts of VC capital, but only a fraction is coming from domestic investors.

The Kalifa Review, so-called because it was led by former Worldpay head Ron Kalifa, was published in February last year. Its recommendations included plans for a £1 billion (about $1.4 billion) fintech growth fund, a new Centre for Finance, Innovation and Technology, an updated visa process to attract international talent and a relaxing of rules around listings to encourage late-stage fintech IPOs. All of these have been implemented or are in the process of being implemented.

PitchBook data shows that fintech investment in the UK totaled $14.35 billion across 662 deals, representing an increase of roughly 250% and 12% from the previous year, respectively. Already in 2022, there has been $2.72 billion invested across 71 deals. Much of that activity is a result of broader, long-term trends that have spurred activity in the sector.

"Fintech is a major VC subsector in the UK, and a number of startups have emerged strongly from the region in recent years," said Nalin Patel, a senior research analyst at PitchBook. "The UK has been able to develop mature companies in the space given its leading position as a financial services hub globally, which has attracted talented individuals to popular fintech clusters including London."
 
 

While funding has increased dramatically, much of that capital continues to come from outside the country. Most of the largest fintech deals for UK VCs in 2021 were led by overseas investors. Both challenger bank Revolut's $800 million round and credit card firm Zopa's $300 million round were led by SoftBank. It was US bank JP Morgan that led LendInvest's more than $680 million pre-IPO round. Meanwhile, it was the Abu Dhabi Growth Fund alongside New York's Coatue and Alpha Wave Ventures that backed a reported $475 million round for Monzo, another challenger bank.

In a statement, Judith Hartley, CEO of British Patient Capital, the VC arm of the government-backed British Business Bank, stated that many UK institutional investors are said to be reticent when it comes to investing in domestic startups.

She noted, "By not investing in UK venture and venture growth funds, UK institutional investors are failing to capture the value being created by fast-growing businesses operating in some of the most exciting and dynamic sectors in the economy."

Featured image by Adrian Dennis/Getty Images

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