Fintech founders: Covid-19 crisis prompting funding challenge

By Daniel Lanyon on Tuesday 18 August 2020

Alternative LendingDigital BankingSavings and Investment

A survey from the Digital Finance Forum suggests entrepreneurs are expecting a tougher time to access cash to grow their businesses.

Fintech founders: Covid-19 crisis prompting funding challenge
Image source: Christian Faes, Chair of the Digital Finance Forum and Co-Founder of LendInvest

Nine out of ten founders expect to face funding challenges in the year ahead, according to a recent survey of fintech founders.  

The Digital Finance Forum surveyed more than 100 fintech founders on issues including Covid-19 crisis including funding, accessing government support schemes and opportunities opened up by the coronavirus.

With the ongoing pandemic passing the five month-mark (since lockdown began), fintech has appeared relatively immune as a sector so far.  

There have been a notable number of larger fundraising deals, with the total money raised in the UK’s fintech sector via venture capital marginally higher than the same period 12 months previous.  

A number of firms involved in the largest deals, including Revolut and told AltFi last week that they saw good opportunities to raise cash despite the uncertainty in the economy. 

Nonetheless, smaller fintech firms, are growing more cautious. Two-thirds of the DFF’s respondents were more firms with less than 50 employees while just a quarter had turnover greater than £10m. 

Just under half of the respondents (46 per cent) cited limited access to capital as the most pressing challenge facing them, and the main impact of Covid-19 upon their business. 

Difficulty in accessing government support schemes during the Covid-19 pandemic was cited, with 37 per cent surveyed having sought a loan but were unable to qualify for one. 

Christian Faes, Chair of the Digital Finance Forum and Co-Founder of LendInvest, says there is work to be done, to ensure that the UK remains a world leader in the fintech sector.  

“Key themes that came out from many of the respondents pointed to the fact that many Fintechs are not on a level playing field with other startups when it comes to raising S/EIS funding; that it can take ‘way too long’ to obtain authorisations from the regulator; and that changes are need to ensure that the non-bank sector is on a more equal competitive footing to the larger incumbent banks. 

John Glen MP, Economic Secretary to the Treasury said: “The 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” 

The survey respondents made a series of recommendations to government including a review of the Enterprise Investment Scheme (EIS)/Seed Enterprise Investment Scheme (SEIS) rules to end the exclusion of the financial service sector, along with improving the competitive landscape for non-bank lenders, so that there can be a more level playing field. 

More than a third (35 per cent) of founders expressed optimism that Covid-19 would provide new opportunities as it accelerates digital adoption among businesses seeking to change the way they work; and over 80 per cent were confident about the outlook for their businesses generally over the next 12 months 

Two in five founders said that they are actively looking to grow and expand their business in the coming months, not least since they anticipate new talent entering the labour market. 

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