Financial technology, or better known as fintech, has become one of the most attractive sub-sectors for investors over the past twelve months, with record funds pouring into industry. Emerging technologies in finance was a topic of discussion during last week’s Forex Magnates London Summit as representatives from firms involved with equity crowdfunding, visual data analytics, Bitcoins and P2P marketplaces participated in the event’s Fintech Panel.
Among topics of discussion was whether the industry was hitting a bubble with sky valuations taking place. The consensus was that despite the rising valuations, we still don’t know the full potential of disruption in the financial industry as the emerging tech is rising to replace antiquated systems that have been in place at banks and brokers. As a result of the rotation of new technology and newfound eagerness of existing firms to adopt products from outside sources, the fintech field is attracting firms coming from all types of backgrounds that are creating products to increase efficiency and democratize trading in the financial industry.
However, despite fintech innovation emerging from the sector, breaking into the financial industry is often a challenge due to regulation, security requirements and long sales processes to larger banking institutions. As a result, even companies with leading products and well connected founders will still require large amounts of patience to succeed as fintech firms. For investors, the long path to success for fintech firms causes a challenge with whom to invest funds.
In response to the challenges involved with investing in fintech firms, but also to tap into the potential opportunity of the industry, FINTECH Circle, a new UK and European investor group was officially launched last week. Composed of angel investors, entrepreneurs and senior executives from the banking and technology field, FINTECH Circle aims to leverage the combined resources, experience and connections of the group to achieve greater success in investing within the fintech space. Officially launched last week at ClubLounge39 in Level39 London, Forex Magnates attended the inaugural FINTECH Circle event.
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Kicking off the event were presentations from FINTECH Circle CEO and Founder Susanne Chisti, Jenny Tooth, CEO of the UK Business Angels Association (UKBAA), and Claire Cockerton, CEO of Innovate Finance. Having provided a story of how after arriving in Silicon Valley in the 1990’s and missing out on an opportunity to work for a startup that became Yahoo, Chisti explained to the audience how we don’t want to miss the current fintech opportunity, which is specifically taking place in London.
“Don’t Miss the Fintech Opportunity”
Among the interesting figures presented by FINTECH Circle’s Chisti, was that London is currently growing quicker for technology investing, twice as fast as Silicon Valley. Within fintech the pace is even faster. As an example, global fintech investing totaled $1.7Bln in 2013, with $145Mln in UK/Europe firms. So far for 2014, that figure has quadrupled to $592Mln in 56 deals that have taken place across the UK and Europe. Attendees also echoed the sentiment of opportunity as they viewed London being well positioned in terms of having in place the financial companies, technological infrastructure, available capital and experienced advisors and mentors to allow London to become the Silicon Valley of fintech.
Explaining optimal ways to invest in the fintech sector, Jenny Tooth of the UKBAA presented findings from research based on data from the group’s 15,000 members. According to Tooth, she favored investing in syndicate groups as it provided a vehicle to create a portfolio of investments. According to the UKBAA’s data, around 50% of angel investments return less than a zero percent return, often resulting in a complete loss. Nonetheless, on the whole, research has shown that angel investing provides greater than 20% annual returns thanks to individual outperformers that return an excess of 1000% profit on investments. As such, syndicated deals allow for groups of angel investors to band together to scatter their funds across a wider array of fintech startups to reduce risk.
Tooth also explained that well performing syndicates are composed of leaders who are active in corresponding between companies and investors. The benefit of such a syndicate to startups is that it limits the amount of active investors who need to be answered to on a consistent basis, but allowing them to have a wide ownership base that can be leveraged to help open networking doors or become cheerleaders of their products. In relation to FINTECH Circle, one of the goals of the private group is to be able to establish such syndicates that leverage the power of the crowd to both discover new investments and assist the growth of startups.