The level of interest shown towards London’s promising fintech scene by US investors continues to soar. The range of regionally exclusive benefits available to the London fintech hub has propelled the city to the centre of international interest.
Here to dive deeper into exactly why this is is John Clark, the Senior Director (US) of the corporate finance advisory firm Royal Park Partners. In this guest post for The Fintech Times, John discusses the details of why London’s fintech hub appears so appealing to US investment, alongside suggesting what the city can do to ensure that the boom continues.
2021 is set to be a record-breaking year for EU fintech. Despite only being halfway through the year, EU-based fintechs have raised €2 billion more in 2021 than in the entirety of 2020. At the centre of this boom is the London fintech hub. The UK ranks as the top destination for fintech investment, and the capital itself attracts 90% of this.
Powering this growth is the rapid increase of US investment into European assets. This year alone, American investors have put €10.1 billion into European ventures, more than the entire 2020 total. So, the question for those with an eye on London fintech should be why are US investors looking across the pond? And how can London fintechs capitalise on this?
Behind the US Boom Into London Fintech
US fintech investor interest in Europe started a few years back and resulted in big players like Blackstone Growth, KKR, Tiger Global and Accel establishing a regional presence. Now we are seeing a range of new entrants, including Steve Cohen‘s early-stage venture firm Point72 Ventures, which is a strong indicator that this interest will continue to grow.
There are a number of reasons for this. One primary factor is that fintech investments in Europe are generally better valued than those in the US. In the US, the unicorn saturation that we see on the East and West Coasts has led to over-valuations in Silicon Valley, Boston and New York. The situation is not the same in Europe.
As a result, investors are looking to get more bang for their buck across the ocean. In the past year alone, just three of the largest investment funds each made three fintech investments in Europe. As funds get larger and seek to deploy more capital, we are going to see this trend continue.
Another reason for US fintech investor interest in Europe, is the depth of tech talent across the region. London is at the epicentre of this. By contrast, US tech talent tends to be concentrated in certain geographic pockets.
In London, with its connection to other European fintech hubs, we are seeing a lot of tech talent focused on applications like payments, banktech and BNPL to name a few. These technologies are particularly attractive to US investors, especially given there is such a big market across the region to support the growth of these businesses and an appetite to deploy them.
Making London’s Fintechs Even More Attractive to US Investors
At the heart of it, US investors are driven by the quality of technology developed, strong management teams, and the broad use case of products. For example, within the payments sector, which has seen the most interest from US investors and has dominated European headlines, EU fintechs lead the way.
We are seeing high levels of interest in capital market tech, insurtech and cross-border payments providers. Payments focused companies are offering not only infrastructure, but a whole host of suites – from API and gateways to processing of transactions and merchant acquiring – all built into one solution.
These solutions are easier to build in Europe due to the concentration of fintech talent in the capital. As a result, London’s fintechs, being at the centre of this frontier industry, makes them both eye-catching and ripe for investment.
To increase attractiveness to US investors, London’s fintechs should demonstrate that their product or service can scale within the region, taking advantage of Europe’s open borders.
For example, a London-based fintech would do well to have a presence in other European teach hubs like Amsterdam, Berlin, Poland and the Nordics. From a US investor standpoint, this can be seen as a proof of concept if you can establish yourself across Europe, that success could be replicated in the US.
Ensuring the London Fintech Boom Continues
London fintechs and the wider tech sector have been exceedingly effective in promoting London as a hive of innovation and a true tech hub. The UK government and organisations like Tech Nation have played an important role in achieving this. A large part of this is due to the potential exit strategy of a company – chiefly, whether it will IPO on a European or US exchange.
What is needed to build upon this progress and continue the fintech boom is for the London Stock Exchange (LSE) to become a more attractive proposition for companies looking to IPO or direct list.
The LSE is working to transform its IPO model to compete more with the US. This will be essential if US investors are to maintain their interest in London’s fintech. This transformation will automatically make local IPOs more attractive to US investors.
Some other European exchanges are already looking to make similar moves, which should allow them to compete with the NYSE and NASDAQ for listings. This will reinforce the necessity for the LSE to spearhead these developments and revise its listing guidelines.
2021 has already broken records for the advancement of London fintech. A combination of acquiring talent and taking advantage of the proximity of other EU fintech hubs has placed London at the centre of EU fintech. Going forward, London needs to capitalise on the influx of US investment to cement its position as Europe’s fintech capital.