Coronavirus will make it harder to raise finance in the next year, say fintech founders
The majority of fintech founders in the UK believe the pandemic will make it harder to raise finance in the next year.
A survey by the Digital Finance Forum (DFF) found that just under half of respondents cited limited access to capital as the most pressing challenge during the pandemic. It comes as the government starts to wind down support for businesses and the UK braces for a recession and jobs crisis.
Three quarters of founders were positive about how the government has supported the economy, with half taking advantage of the various support schemes. Sixty one per cent of startups tapped into the furlough scheme, which is due to wind down in October.
A fifth used the bounce back loans, which allow SMEs to borrow up to a quarter of their annual turnover, capped at £50,000, The Future Fund, which was introduced as an option for startups following criticism of CBILS, was used by just 16 per cent of fintechs.
Despite an overall positive view of the response to the pandemic, three quarters of respondents did not think the government had supported the fintech sector well during the crisis.
Accessibility to government schemes has been an ongoing issue from the start of the national lockdown. More than a third – 37 per cent – of respondents said they had sought a loan but were unable to qualify for one.
Fintech not on a ‘level playing field’
There are a number of areas the fintech industry needs help particularly in ensuring startups are able to access early stage capital.
Just under half of those surveyed mentioned limited access to capital as the most pressing challenge during the pandemic. The survey found the startups feel fintech is not on a level playing field with other stage companies, when it comes to access to capital.
Christian Faes, chair of DFF and co-founder of LendInvest, commented: “The UK’s Fintech companies have a huge role to play in helping to drive our economic recovery, and in many respects, the sector is just getting started. Even more reason for the government to support the sector to ensure we remain a world leader.”
Fintechs have called on the government to review the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) rules which exclude investment in many types of financial services businesses.
The startup founders also expressed strong feelings about venture capital firms having “too much clout” with the government, and have done little to help fintechs during the crisis.
The government’s Future Fund came under criticism for only catering to VCs, just one part of the overall investment landscape. The headline terms were said to be structured along the lines of a normal VC-type term sheet, putting early-stage firms at a disadvantage.
DFF’s research also found that startups were looking for VC investors to have relevant financial services or fintech experience.
However it was not all doom and gloom, with more than a third of founders were optimistic that coronavirus would provide new opportunities. The research showed that founders believe it could the accelerate a pivot to digital as firms adapt to the “new normal”. Additionally, more than 80 per cent of respondents were confident about the outlook for their businesses over the next 12 months.
John Glen MP, Economic Secretary to the Treasury said: “Digital Finance Forum’s results reinforce my commitment to ensuring the UK’s pre-eminence as a place for fintechs to do business.”
“We have recently launched a major independent fintech review which will consider how the UK can continue to foster innovation, maintain an ecosystem that supports growing firms, and promote the integration of new technologies across financial services”.