Fintech startups around the world are continuing to attract significant investment and so we decided to look more closely at how these companies are financed and how they are performing.
This note highlights a few insights relating to first round funding. Other issues covered in the research are the progression in valuation at each round of investment, the returns to investors, the value created for founders, the time between rounds, the type of equity capital issued, and financial performance.
The research sample is growing but currently includes 20 fintech startups, ranging from some well-known cases like Funding Circle and TransferWise to lesser-known companies like Osper and Squirrel. The focus at this stage is on fintechs which provide a service to end-users – either consumers or small businesses – rather than technology or services for other financial services companies. These are the fintechs which are trying to disrupt the traditional financial services business models.
Each case is unique and therefore the averages are only indicative but a few observations on first round funding are:
The average amount invested by the founders before getting external investment was just £57k. The highest in the sample was £285k and in a few cases there was no recorded investment from the founders prior to external funding.
In 80% of cases, angel investors were part of the first round but in 60% of cases there was also an incubator or VC participating in the first round. Seedcamp is a good example of a seed investor and they were first round investors in 3 of the cases in the sample.
The average amount raised in the first round of external investment for the sample was £0.9m. The range was quite wide, from £0.2m to £3.4m. The highest amount was raised by Atom Bank which reflects the funds required for their strategy to secure a banking license.
The average shareholding received by the first round investors was 29%, and the median was 27%. Again there was a considerable range in the first round shareholding, from 12% to 69%, with Atom Bank being the highest. The average first round valuation was £3.0m.
Michael Pearson, Clarus Investments