Corporate Venturing gaining market share in FinTech landscape

08 December 2016 Consultancy.uk

While venture capital invested into FinTech companies has been slow in recent quarters, in line with a broader slowdown in startup financing globally, investments by multinationals – corporate venturing – is on the rise. Over the past 12 months the share of corporate venturing as a percentage of the total has risen to nearly one-third.

Funding for FinTech has in recent years been ramping up, jumping from 457 deals with a total value of $2 billion in 2011 to 1,162 deals with total value of $19 billion last year

Quarterly global FinTech Financing Trend

FinTech investment trends

Latest data, from professional services firm KPMG and research analyst CB Insights, shows that in the most recent quarter there were 410 deals in the FinTech sphere, totalling $2.9 billion. Under half (44%) of those deals were backed by venture capitalists, with $2.4 billion stemming from private equity and other investment vehicles.

According to the analysis, market uncertainties are affecting investor appetite. Factors include a wider slowdown in the startup landscape and fewer mega-deals (those valued at more than $1 billion) resulting in lower valuations – even while volume has risen on last year. The researchers, in addition, note that total deal value this year is likely to exceed last year’s effort, largely due to a $4.5 billion investment in Ant Financial closed earlier in the year. 

Quarterly global FinTech deal Share by stage

FinTech deal share

The breakdown of investment, by company life-stage, has shifted slightly throughout the previous quarters. While seed / angel investment hit highs in Q1 2016, at 39% of the total pie, it fell to 33% by Q3 2016. Series A funding has fallen 5% in total share from the same time last year, while the ‘other’ funding category has jumped 5% to 13%. Following a relatively large jump in Series C investment last quarter, the previous quarter has returned to its longer term trends.

Deal count and volume by continent

Continental drift

Different global regions showed relative variations in venture capital (VC) backed investment into FinTech. In terms of deal count, Europe has seen a slight decrease, falling from 42 last year to 38 this year. Asia saw a steeper decline, falling from 44 to 35. Deal value in Europe halved since the same time last year, falling from $0.4 billion to $0.2 billion. Asia too has seen a sharp decrease, dropping $0.5 billion in value; although North America showed the most volatility, dropping from $2.8 billion to $0.9 billion during the same quarters, a year apart.

Corporate venturing

An analysis of the share of corporate venturing shows that its share has been has been ticking up, from 23% of the total in Q3 2015 to a 30% share in the latest quarter.

CVC participation in global deals

The growth in corporate venturing follows from the growing interest of large companies in either acquiring innovative business models or working together with startups. Several studies have of late highlighted that the relationship between FinTechs and incumbent institutions, remains important for both parties. FinTechs, a recent PwC report highlights, are keen on collaboration, seeking to access customer bases, among others, while for incumbent institutions, FinTechs represent a key source of agile innovation. 

Across Europe, and particularly in the UK and Ireland, collaboration between FinTechs and corporates is on the increase. The collaboration is taking a number of forms, including direct engagement, as well as stimulus through accelerators and incubation hubs. FinTechs represent a source of innovation that is, in part, malleable to the current needs. Arik Speier from KPMG remarks, “From banks and innovation hubs to a broader spectrum of organisations working on FinTech platforms collaboration provides traditional institutions with a way to leverage FinTech innovations while giving FinTech companies access to the expertise and support they need to grow.”

Major bank investments to VC-backed Fintechs

Big bank investment

According to the firm’s research, the biggest investors in FinTechs include Citigroup and Banco Santander, both at 8 investments total over the past year, followed by Goldman Sachs at 7. Mitsubishi UFJ Financial group invested in 5, while UBS and Sumitomo Mitsui invested in 3 apiece. With a swathe of other banks investing in 2 or 1 FinTech. 

Brian Hughes, Partner in KPMG's US Venture Capital arm, says, "There is a lot of liquidity in the market as well as a continued demand for FinTech innovation by the large financial institutions. As such, these financials will continue to look for ways to embrace the promise of these innovations through a number of different avenues, including partnerships, direct investment and merger and acquisition transactions.”

London leads the fast growing pack

According to a recent study by Roland Berger, two thirds of European FinTech startups are eyeing strong revenue growth. The UK, in particular London, is regarded as the globe's most attractive ecosystem for FinTech's, according to reports from EY (UK is FinTech capital of the world) and Deloitte (London best global hub for FinTech).

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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.