UK FINTECH start-ups continued to attract investment from venture capital (VC) firms in the first quarter of this year even though overall funding across all sectors has dropped, according to research from big four accountants KPMG.
Overall VC investment into UK firms slowed to $1bn (£705m) in the first quarter of 2018 amidst uncertainty related to the deadline for reaching a transition deal with the EU. That followed a busy fourth quarter of last year that saw over $2.8bn invested by VCs.
However, fintech was the strongest performing sector in the last quarter, with London-based social trading and investing network eToro raising $100m to support its growth plans.
“As the UK start-up ecosystem has matured, a lot of later stage start-ups have shifted their focus from growth to profitability, particularly in the fintech space,” said Patrick Imbach, head of KPMG’s innovative start-up practice.
“Now we are seeing some fintechs succeeding; they are delivering on profitability objectives and positioning themselves for potential exit over the next one to two years.”
According to the report, VC investment in deeptech, particularly in AI-related technologies, is expected to increase across much of Europe, in addition to autotech, healthtech and blockchain.
Cryptocurrencies are also expected to gain more attention in the near-term, the report said, with some regulators likely to move forward with new rules to oversee initial coin offerings.
KPMG noted that the initial public offering market is also expected to see increased activity, with peer-to-peer lending platform Funding Circle thought to be planning a flotation and others considering their options.
“Despite the trend in the number of deals in the UK continuing to drop, we can see that investors are clearly focused on making a smaller number of later stage deals,” said Imbach.