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Despite a brief slump after the onset of the Coronavirus pandemic, 2021 has exceeded all expectations for fintech. Investment values are doubling quarter on quarter, and Q1 was the biggest quarter for fintech investment in history. In fact, by the beginning of June, venture investment in fintech had already surpassed levels from the entirety of 2019, which was previously the highest on record. As consumers look to digital financial management solutions, and businesses integrate fintech capabilities to improve, scale and optimise the costs of their operations, there has never been a better time to invest in this space.
Keep reading to find out which startups are on our watch-list this month.
Apathy with legacy financial institutions, kickback from the 2008 financial crisis, and the build-up of tech and finance talent from silicon roundabout and the city provided the perfect storm for London to lead Europe’s fintech revolution. Investors poured billions into neo-banks, remittance firms, p2p lenders, robo-advisors and trading platforms.
Although there have been some concerns about their exit viability, we have begun to see these firms start to deliver returns to investors. PensionBee IPO’d on aim earlier in the year, JP Morgan is acquiring Nutmeg and Wise announced an impending direct listing last week. However, the consolidation of B2C fintech is likely round the corner as the landgrab for new customers becomes ever more competitive. With companies like Revolut becoming a one-stop-shop for finance it will be tougher than ever for new entrants to compete with the established unicorns.
One startup that has caught my eye is Lightyear, which was founded by senior former Wise employees and came out of stealth mode this week promising commission-free stock trading and ETFs. Freetrade is still the clear market leader in the challenger-broker space in the UK, and never quite saw the same level of vicious competition as the neobanks (it’s worth watching this interview to get a sense of what the market was like in the early days). The current bull-market has increased the nascent demand for more democratised trading products, but given US-based behemoth RobinHood pulled out of their planned UK launch, I feel there is still a lot of opportunity in the UK. With such an experienced team Lightyear could well be best placed to capitalise on this.
According to a recent FT article, retail traders only accounted for 10% of US equity trading volumes a decade ago. Now, according to research conducted by Credit Suisse, around 30% of all the equity trading in the US is carried by retail investors. This is thanks to low barriers to entry, made possible by trading apps such as Robinhood, Freetrade and Etoro which allow retail investors to register and buy publicly available stocks in a matter of minutes. It’s also a result of easier access to information. Social media and online communities allow retail investors to share relevant information, trading tips and investment strategies. All in all, it’s easier than ever for retail investors to identify and capitalise on market trends.
If we break it down by generation, investment behaviour varies. Unlike Boomers and Generation X, Millennials and Generation Z investors aren’t just looking for capital gains any more – they want to invest in assets that align with their passions and values. As a result, demand for alternative collectible assets is rapidly growing. For example, the classic cars market has grown by 17% in the last year and 490% over the previous decade. Younger retail investors don’t want to limit their investments to publicly traded stocks, but are investing through new fintech startups, such as Rally Rd in the US, or Koia in the UK, that offer alternative assets like wine, cars, art, sneakers and watches.
Koia was founded in February 2021 by three founders, Richard Draper, Ben Riazy, and Iris ten Teije, to allow everyone the chance to share in the appreciating value of alternative assets such as fine wine, art and rare sports cards. The founding team has vast experience in financial services, having worked for the likes of HSBC, Barclay’s, UBS, and VC-backed fintech startups. Koia just closed an angel investment round from notable fintech founders and investors including Gary Clarke, ex-Head of Global Equities at Blackrock, Gary Dolman, co-founder of Monzo and André Mohamed, co-founder of Freetrade.
On Koia’s platform, investors will be able to purchase shares of collectibles and trade them with other investors on the platform’s secondary market. Alternatively, investors can hold and wait for the assets they invested in to be re-sold. On a technical level, each asset listed on Koia’s platform is split into smaller ownership stakes using the concept of fractionalisation. The startup then takes care of insurance, storage and maintenance of these assets.
Koia is not the first startup to offer collectibles as an investment to retail investors. Seedrs’ alumni Feral Horses and TheCarCrowd have done something similar, but Koia seems to have all the right pieces in place: a strong founding team, well-known backers and a perfect choice of timing given by the recent growth of retail passion-driven investing. Koia will launch its platform to the broader public in Summer 2021, but interested people can already pre-register their interest to use the product on Koia’s website.
Investment activity in the fintech sector in Europe is on the rise. According to CB insights, the first quarter of 2021 saw a record 151 deals and $5B in total investment value. Europe’s largest VC round in 2020 ($650M) was raised by Swedish-based payment provider Klarna. This March, Klarna took its position as Europe’s largest unicorn by raising another equity round of $1B from Sequoia Capital, Visa and other prominent investors. Meanwhile, many fintech sub-sectors including neobanking, digital lending, wealth management and crypto are showing steady growth.
Another impressive European fintech we’re watching is Estonia-based Change Invest which is on a mission to unleash a borderless financial system powered by the people. Thousands of people from over 30 countries already trust Change to save them time, stress, and fees every time they trade. At Seedrs, we’ve always had great track-record in funding ambitious Estonian businesses (EstateGuru, Crypterium, Investly, Fagura) and are keeping a close eye on Change Invest and the progression of its mission.
European startups are gaining traction on Seedrs – investors from 75 countries that have invested €130M+ into European campaigns alone in the last 5 years. 2021 has seen a record-breaking volume of €20M+ in investment to date into European campaigns alone and the rapidly rising activity on our secondary marketplace continues to present new liquidity opportunities investors across Europe. We believe Change could be an excellent addition to the platform, and are looking to potentially support their growth in the near future.
This month, I’m watching Maji, a financial wellbeing platform that gives employees a place to understand and manage their pensions, and properly plan for the future. Their aim is to help people to take control of their whole financial life, starting first with pensions.
Founded in 2019 by Sahil Sethi and Megan Worthing-Davies, Maji helps people understand the value of their pension, and save into it at recommended levels. It’s currently available to users only through employers and a network of partners, but direct account sign up for individuals is coming soon. The startup raised £660k in November 2020 from a group of angel investors to fund its growth.
According to the Maji team, around 20 million people in the UK are under-saving for their retirement. However, when you put that in the context of the UK gender pensions gap (Nest estimates this to be between £41,000 – £70,000), and the UK ethnicity pensions gap (the median private pension wealth for White British headed households is £80k, compared to just £5k for households from Bangladeshi, Chinese, Black African and ‘any other ethnic group’), it is clear that a service like Maji could have enormous impact from a diversity perspective.
Getting on the property ladder in the United Kingdom is difficult, with securing a suitable deposit being the primary challenge faced by over 30% of first-time buyers. The second greatest challenge, faced by 15% of buyers, is being able to secure an adequate mortgage based on their current income. With the average house in the UK costing over £226k (and over £400k in greater London), it’s no surprise that the average Brit can’t lock down a mortgage before the age of 30. Perenna is on a mission to change that.
In January, the UK-based mortgage fintech startup announced that it had secured $10M (£7.3M) in seed funding, led by former head of structured products at Deutsche Bank, Kevin Flaherty and Managing partner of Star Capital, Tony Mallin. Importantly, Perenna has finance lifers at the wheel. Heading up its core team are three ex-bankers with more than 70 years of collective mortgage experience; Arjan Verbeek, Hamish Peacoke and Colin Bell. Perenna is planning to introduce 95% LTV (Loan to Value) mortgages with a fixed-for-life interest rate, along with unparallelled flexibility that puts the borrower in control, for the first time. After securing its banking licence, I expect Perena will be gearing up for a significant series A by the end of this year.
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