Fintech R&D Funding UK - Who’s Getting It?
Fintech R&D funding levels have steadied since the dizzy heights reached in 2015 and early 2016 (PWC, The Pulse of Fintech – Q1 2017). Linda Eziquiel follows the money to take a look at what’s happening in our own back yard - who is getting the funding and what are they doing? Below are some examples of fund raising successes by UK home grown ‘wannabes’ and ‘already making it’ companies.
Most fintech companies will inevitably be ploughing a least a portion of their fund raising successes into Research and Development (R&D) so we expect that the companies featured below are also benefiting from claiming R&D tax credits. Pre trading and loss making companies, with less than 500 employees, can secure R&D tax credit cash payments worth up to 33% of their investment in qualifying Research and Development; while profitable companies receive 26% of their qualifying R&D investment costs as reduced corporation tax payments (i.e. for every £100K invested they pay £26K less in corporation tax).
One of the latest young companies to receive an injection of finance is London based Prodigy Finance – a company that provides loans to students from around the world to help them study at top universities. Business Insider reported in August 2017 that “Prodigy Finance has raised $40 million in equity funding from leading London venture capital funds Index Ventures and Balderton Capital, as well as African fintech accelerator AlphaCode”. They also secured debt finance up to $200 million. That’s on top of $123.5 million raised in 2015 at venture stage ($111m with Credit Suisse, Deutsche Bank and Undisclosed investors, plus $12.5m with Balderton Capital, Business Angels. They filed their first accounts in 2010 and from information available it looks like the equity funding raised in 2015 was their first significant funding round. “The $40 million in equity funding (raised August 2017 will be used to hire more staff in tech, engineering, and business development” so it appears that at least a part of that funding is going into R&D.
Another great example of a London based Fintech funding platform, Landbay, was in the news recently following a successful funding round with Seedrs, Crowd Fund Insider reported that “UK-based peer-to-peer lending platform Landbay announced the completion of its latest crowdfunding round on Seedrs, which attracted a grand total of £2,440,266.” How much of that will go into R&D cannot be determined as they say they are focused on expanding operations and launching new products. Landbay’s peer-to-peer lending platform puts lenders and borrowers together, with borrower loans secured against property. Landbay started in 2014 and was supported at seed stage with equity funding from Seedrs to the tune of around £1.5m. Further equity investments have been made by Omni Partners and Crowdcube and Seedrs have continued to take further equity stakes, including the latest reported above. In total Landbay must have raised somewhere above £10m.
Glint is an interesting company still at seed stage and in ‘stealth mode’ so one to watch as it’s hard to say what their offer will be, but it looks like it could involve a cryptocurrency. They are reported as having raised £3.1m - FINSMEs reported that their “Backers included Bray Capital, Haruko Fukuda, Oliver Bolitho, Hugh Sloane, etc.” A good chunk of their funding will surely be ploughed into R&D. The company says of itself: “Glint helps us move to a more stable global economy. A new global currency, account and app, Glint is a timely innovation with immediate and reliable application. A game changer…”.
Bristol based Limber Jobs Ltd was registered in 2015 and is less fintech orientated but nevertheless ultimately concerned with facilitating financial transactions between people. Limber provides a platform for pairing hirers in the hospitality and retail sectors with workers in order to fill empty shifts; also providing payroll services and worker ratings. Insider Media reported that they had raised: “£250,000 initial funding target in a round led by the Bristol Private Equity Club (BPEC)”. That could be just the first tranch in a larger commitment. They are certainly undertaking significant R&D - Insider Media said the funding will help them with “investing heavily in the Limber platform”.
There are plenty of other examples including:
Neyber: allows employees to borrow loans directly from their salary – CCR Magazine reported: “Neyber Raises £21m at Series C Funding Round Closure”.
Kantox: online peer-to-peer forex trading platform targeted at SMEs and mid-cap funds – UK Business Insider reported: “Kantox raises £4.6 million from investors as it targets profitability”.
Cleo: Tech Crunch reported that: “a chatbot that wants to replace your banking apps, raises £2m led by LocalGlobe”.
R&D funding in the UK is clearly critical for success. Anecdotal evidence is that there is hot competition between UK based companies wanting to hire top R&D talent. The top developers want to know that they are joining a winning team so they will prefer to work with well-heeled companies where they can command high salaries. To hire UK/USA talent, companies therefore need deep pockets, which they usually can only acquire if they are successful in raising significant tranches of funding.
Investors are also said to prefer investments where the R&D is being done in the UK or USA/Europe, which puts companies seeking UK/USA backed investment at a disadvantage if they are using cheaper foreign based developers from beyond these countries. The choice may therefore be either raise funding and use it to pay high salaries in the UK or stick with cheaper foreign based R&D teams and face a harder challenge in securing investment – not an easy choice..
Thanks also to Beauhurst an invaluable source of rich data on UK fast growth companies.
Are you ready to find out if you qualify or how much your R&D claims could be worth?