the 2016 vc fintech investment landscape by innovate finance

THE 2016 VC FINTECH INVESTMENT LANDSCAPEFebruary 2017

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SUMMARY

GLOBAL

UK

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08

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ANALYST SUPPLEMENT

APPENDIX

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31

CONTENTS

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SUMMARY

| 4Source: Pitchbook (as at 30/01/17)

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THE 2016 VC FINTECH INVESTMENT LANDSCAPE – SUMMARY (1 of 3)

Source: Pitchbook (as at 30/01/17)

Lawrence WintermeyerCEO – Innovate Finance

China and the US dominate FinTech investment with a combined $13.9 billion of the total $17.4 billion, 80% of the global venture capital raised in 2016, and the top two ranked future foreign investment sources for UK FinTech. Whilst UK FinTech venture investment is down 33.7% in 2016 at $783 million, largely attributed to the uncertainty of Brexit and geo political / macro economic factors, Q3 funding rebounded, and 9 of the top 20 deals completed in the 6 months following the referendum, with the UK retaining its global ranking in third place. The top three UK deals were Starling Bank (challenger bank) at $101.0 million, iwoca (alternative finance) at $57.0 million and Nutmeg (robo advice) at $52.2 million

The loss of passporting rights will hit FinTech payments firms if special provisions to the single market are not negotiated upon leaving the union. However, maintaining and further improving access to global FinTech talent has superseded passporting across the FinTech community’s post-Brexit priorities. Over 30% of Innovate Finance FinTech founders and CxOs are non-British with many employing European staff. Attracting further investment to UK FinTech remains the number one priority

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2016 saw 1,436 deals globally, attracting $17.4bn of VC investment, a 10.9% increase on 2015

China attracted the largest amount of VC investment at $7.7bn over 28 deals, an 84% increase on 2015 investment of $4.2bn, outpacing the US for the first time

US investment decreased in 2016 by 12.7% to $6.2bn despite being the global leader in deal volume at 650 deals

3 “mega-rounds”, each over $1bn, contributed to the significant increase in 2016 VC investment into China: Alipay (Ant Financial) – $4.5bn (the biggest FinTech VC round in history) Lufax.com – $1.2bn JD Finance – $1.0bn

The most active global investor in 2016 was the seed fund and start up accelerator 500 Startups with 39 investments

Accelerators Startupbootcamp and Techstars were also amongst the most active global investors, with 36 and 30 investments respectively

There were no notable FinTech IPOs globally in 2016. The top global exit was the Markit’s (UK) $5.5bn merger with IHS (US)

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The UK attracted $783m of VC investment, down 33.7% on 2015. The UK ranked third globally in total investment behind China and the US, and second in terms of deal volume with 173 deals

The UK VC investment CAGR dropped from 58% during the period of 2012-2015 to 33% during the period of 2012-2016

Q2 2016 investment slowed dramatically compared to Q2 2015, which many in the community attribute to the general uncertainty in the run up to the Brexit referendum on 23rd June 2016

However, 8 of the top 20 deals closed post-Brexit, with the post-Brexit investment totaling $368m, just under half of the total UK investment for 2016

Q4 also underperformed by 39% compared with same period in 2015, which many have attributed to the macro uncertainty

Starling Bank, iwoca, Nutmeg, SETL and BillFront led the top 5 top UK deals in the range of $35m to $100m of investment. Starling was the only UK FinTech to make the global top 20 deal list, with an angel round of $101m

The 3 biggest FinTech verticals for UK investment were Alternative Lending / Financing (24%), Challenger Banks (20%), Wealth Management (10%) and Money Transfer & FX (10%)

46% of investment into the UK was from non domiciled VCs, largely coming from Europe (19%) and US (18%)

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GLOBAL

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2012 2013 2014 2015 20160

5,000

10,000

15,000

20,000

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,581

6,252

11,873

15,64817,355

699

1,036

1,420

1,617

1,436

Deal value Deal volume

Dea

l val

ue (U

SD

M)

Dea

l vol

ume

GLOBAL FINTECH VC INVESTMENT - 5 YEAR TREND

10.9%

2016 has seen 1,436 deals globally attracting $17.4bn of VC investment, a 10.9% increase YoY

Deal value 5 year CAGR: 46.4% Deal volume 5 year: CAGR: 15.5%


-11.2%

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QUATERLY GLOBAL FINTECH VC - INVESTMENT (Q1 15 – Q4 16)

Q1 Q2 Q3 Q40

2,000

4,000

6,000

8,000

10,000

12,000

0

50

100

150

200

250

300

350

400

450

500

2,290

3,848

7,083

2,428

5,317

7,195

2,128 2,714

416 414 416

371

453

366

324

293

2015 Deal value 2016 Deal value 2015 Deal volume 2016 Deal volume

Dea

l val

ue (U

SD

M)

Dea

l vol

ume

132%

87%

-70%

12%

In 2016, global investment increased YoY in every quarter except Q3


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GLOBAL FINTECH VC DEAL VALUE2016

U.S.$6.2bn

Canada$183m

Brazil$161m

Australia$91m

India $272m

Japan$87m

China$7.7bn

Ireland$524m

Hong Kong$170m

Germany$384m

U.K.$783m

Israel$173m

≥ $500m

≥ $100m

≥ $10m $17.4 billion invested over 1,436 deals

Mexico$72m

Singapore$86m


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GLOBAL FINTECH VC DEAL VOLUME 2016

U.S.650

Mexico21

Canada37

Australia27

Singapore41

India82

China28

Ireland17

France31

Germany50

U.K.173

Israel27

≥ 50

≥ 20

≥ 5 1,436 deals in 66 countries Source: Pitchbook (as at 30/01/17)

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GLOBAL FINTECH VC INVESTMENT -TOP 10 COUNTRIES (2015 vs 2016)

United States

United Kingdom

India

Germany

Singapore

Canada

France

China

Australia

Israel

650

173

82

50

41

37

31

28

27

27

764

164

69

33

36

41

36

55

32

34

2015 2016

China

United States

United Kingdom

Ireland

Germany

India

Canada

Israel

Hong Kong

Brazil

7,730

6,182

783

524

384

272

183

173

170

161

4,203

7,082

1,178

97

108

1,690

150

43

125

87

2015 2016

Top 10 countries by deal volumeTop 10 countries by deal value ($M)

China, for the first time, attracted the most investment at $7.7bn over 28 deals, beating the US which attracted $6.2bn over 650 deals


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Country:

Sector: Challenger Banks

Date: 11-Jan-16

Series: Angel

Size: $101m

Country:

Sector: Alt Financing

Date: 04-Oct-16

Series: C

Size: $57m

Country:

Sector: Wealth Management

Date: 14-Nov-16

Series: D

Size: $52m

Country:

Sector: Blockchain

Date: 15-Jul-16

Series: Angel

Size: $40m

Country:

Sector: Alt Financing

Date: 14-Dec-16

Series: A

Size: $35m

Country:

Sector: Payments

Date: 26-Apr-16

Series: B

Size: $4.5bn

Country:

Sector: InsurTech

Date: 22-Feb-16

Series: Undisclosed

Size: $400m

Country:

Sector: Capital Markets

Date: 15-Jan-16

Series: Undisclosed

Size: $1.2bn

Country:

Sector: Consumer Finance

Date: 16-Jan-16

Series: A

Size: $1.0bn

Country:


Date: 31-May-16

Series: Undisclosed

Size: $400m

Top UK FinTech VC deals

TOP FINTECH VC DEALS 2016 Top global FinTech VC deals


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AliPay (China)Lu.com (China)

JD Finance (China)ION Trading (Ireland)

Oscar (US)51credit.com (China)

QuarterSpot (US)Solar Mosaic (US)

PowerPlan (US)Payoneer (US)

WeLab (Hong Kong)Weidai.com (China)

Stripe (US)LendUp (US)

PaySimple (US)Zibby (US)

Kreditech (Germany)Starling Bank (UK)

LendingHome (US)DPO Group (Ireland)

Affirm (US)Betterment (US)

4,5001,200

1,013400400394

237220212180165153150150115103103101100100100100

Most active global investors by deal volume

GLOBAL FINTECH INVESTMENT RANKING 2016

Top global deals by deal value ($M)

Starling Bank was the only UK deal in the top 20 global deals. 500 startups was the most active global investor by number of investments

500 StartupsTechstars

StartupbootcampY Combinator

FinTech Innovation LabsPlug and Play

Digital Currency GroupKhosla Ventures

Omidyar NetworkIndex VenturesFounders Fund

Accel PartersRibbit Capital

QED InvestorsPoint Nine Capital

Peter ThielNyca Parters

MassChallengeFoundersClub

Financial Solutions LabFenway Summer Ventures

3936

3021

1817

1311

9999

888888888

UK deal HQ in the UK


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Top UK FinTech M&A deals

TOP FINTECH M&A DEALS 2016 Top global FinTech M&A deals

EV: $20m

Sector: Payments

Date: 08-Jan-16

Advisor: Deloitte

Sale toMerger with

EV: $5.5bn

Sector: Data & analytics

Date: 12-Jul-16

Advisor: Multiple

EC: $174m

Sector: Enterprise Software

Date: 27-May-16

Advisor: Quayle Munro

EV: $40m


Date: 10-Jun-16

Advisor: Quayle Munro

EV: $33m

Sector: Payments

Date: 23-Dec-16

Advisor: Deloitte

Sale to Sale to Sale to

EV: $2.35bn

Sector: Payments

Date: 01-Apr-16

Advisor: Multiple

EV: $1.5bn

Sector: Payments

Date: 01-Jul-16

Advisor: BofA ML

EV: $725m


Date: 12-Sep-16

Advisor: Evercore

EV: $463m

Sector: Payments

Date: 27-Jan-16

Advisor: Unknown

Sale to Sale to Sale to Sale to

Qingdao Haili Metal One Co Ltd

Merger with

EV: $5.5bn

Sector: Data & analytics

Date: 12-Jul-16

Advisor: Multiple


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UK

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2012 2013 2014 2015 20160

200

400

600

800

1,000

1,200

1,400

1,600

0

20

40

60

80

100

120

140

160

180

200

191 227

727

1,180

783500

63

96

160 164173

Deal value (USD M) Markit Deal volume

Dea

l val

ue (U

SD

M)

Dea

l vol

ume

-33.7%

5.5%

UK FINTECH VC INVESTMENT -5 YEAR TREND

Deal value 5 year CAGR: 32.6% Deal volume 5 year: CAGR: 22.4%

2016 UK VC investment by deal value was down 33.7% at $783m vs $1.2bn in 2015


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QUATERLY UK FINTECH VC INVESTMENT (Q1 15 – Q4 16)

Q1 Q2 Q3 Q40

100

200

300

400

500

600

700

800

0

10

20

30

40

50

60

70

344 318

129

387

295

123 129

236

45

51

34

34

65

30

44

34

2015 Deal value 2016 Deal value 2015 Deal volume 2016 Deal volume

Dea

l val

ue (U

SD

M)

Dea

l vol

ume

-14%

-61%0.0%

-39%

In 2016, UK investment decreased YoY in every quarter except Q3


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Challenger Banks; 20%

Money Trans-fer & FX;

10%

Digital Cur-rencies &

Blockchain; 6%

Crowdfunding; 6%

Alternative Lending / Financing; 29%

Payments; 6%

Enterprise Software; 5%

Wealth Manage-

ment; 10%

Capital Markets;

2% RegTech; 3%Financial inclusion;

3%

Cyber security; 2%

Alternative Lending / Financing remains the top trend in 2016

UK FINTECH VC DEALS BY VERTICAL - (2015 vs 2016)

UK VC investment by vertical - 2015 vs 2016 (% deal value)

2016 UK VC investment by vertical (% deal value)


Top trends

Alternative Lending / Financing

Challenger Banks

Money Transfer & FX

Wealth Management

Digital Currencies & Blockchain

Crowdfunding

Payments

Enterprise Software

RegTech

Financial inclusion

Capital Markets

Cyber security

Data & Analytics

29%

20%

10%

10%

6%

6%

6%

5%

3%

3%

2%

2%

0%

34%

12%

25%

12%

0%

4%

4%

1%

0%

0%

5%

1%

2%

2015 2016

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Most active UK investors by deal number

UK FINTECH INVESTMENT RANKING - 2016

Top UK deals by deal value ($M)

There were 9 Innovate Finance members within the top 20 UK deals. Techstars & FinTech Innovation Lab were the UK’s top investors

Starling Bankiwoca

NutmegSETL

BillFront

Tandem Sonovate

EzbobTransferWise

LendInvestProperty Partner

SonovateDigital Shadows

Azimo

OpenGammaFlypay

GoCardlessCrowdcube

WeSwap.comPayleven

101.057.0

52.239.5

35.031.9

28.928.5

26.025.0

22.617.3

14.013.413.313.313.0

10.510.010.0

Techstars

FinTech Innovation Lab

Startupbootcamp

Entrepreneur First

Passion Capital

Octopus Labs

Balderton Capital

Global Founders Capital

Seedcamp

Index Ventures

Dawn Capital

8

8

7

6

5

5

5

4

3

3

3

Innovate Finance member


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10.0

39.5

10.5

57.0

13.3 13.317.3

52.2

35.0

UK FINTECH VC INVESTMENT -POST BREXIT ROUNDS 9 of the Top 20 UK deals closed post Brexit, with total post Brexit investment of $368m

Source: Pitchbook (as at 30/01/17) Note: The Brexit vote was on the 23rd June 2016

Date Jul-16 Jul-16 Aug-16 Oct-16 Oct-16 Oct-16 Oct-16 Nov-16 Dec-16

Series B Angel n/a C D A B D A

VerticalMoney

Transfer & FX

Blockchain Crowd-funding

Alt Lending / Financing RegTech Payments Alt Lending /

FinancingWealth

ManagementAlt Lending /

Financing

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UK FINTECH INVESTOR HQ LOCATIONS (2015 & 2016) 46% of investment into the UK was from non domiciled VCs, down from 53% in 2015. 2016

investment outside of the UK was largely from Europe (19%) and US (18%)

* United states includes BermudaSource: Pitchbook (as at 30/01/17)

United States*;

18%

United Kingdom; 54%

Europe; 19%

Asia; 3%

Middle East; 1% Other; 1%Unknown; 4%

UK FinTech Investor HQ Locations - 2015 vs 20162016 UK FinTech Investor HQ Locations

United Kingdom

United States*

Europe

Asia

Middle East

Other

Unknown

54%

18%

19%

3%

1%

1%

4%

47%

25%

16%

5%

3%

1%

3%

2015 2016

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UK FINTECH VERTICAL ANALYSIS -5 YEAR TREND The top five verticals in the UK have seen reduced deal size in 2016 in comparison with 2015

Alternative Lending / Financing

Payments Money Transfer & FX Capital Markets Wealth Management0

50

100

150

200

250

300

350

400

450

7344

9 24 1759 51

28 21 23

158

219

130

1539

395

48

298

55

138

230

4577

12

78Dea

l val

ue (U

SD

M)

Data & Analytics* Digital currencies & blockchain

Crowdfunding Challenger banks Enterprise software0

50

100

150

200

250

300

350

400

450

4 8 710 10 6 1329 46 36 43823

42

145

1143 43

158

38

2012 2013 2014 2015 2016

Dea

l val

ue (U

SD

M)

Source: Pitchbook (as at 30/01/17) *Data & Analytics figures exclude Markit VC round of $500m in 2013

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Notes: 1) Includes Barclays / Techstars, Startupbootcamp and FinTech Innovation Lab2) % represent number of cohort companies in a vertical compared with the total cohort companies in that year

UK ACCELORATOR FINTECH COHORT - TREND ANALYSIS (2014 – 2016)

2014

RegTech25%

Digital Currencies and Blockchain17%

Wealth Management17%

Enterprise software24%

Data & Analytics24%

Digital Currencies and Blockchain18%

Payments17%

Data & Analytics17%

2015 2016

RegTech was the most common vertical in 2016, with Digital Currencies and Blockchain the top verticals in both 2015 and 2016

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UK EQUITY CROWDFUNDING FINTECH INVESTMENT 2016

Equity crowdingfunding investment by FinTech verticalKey statistics

Note: Includes Crowdcube, Angels Den, Envestors, SyndicateRoom, SeedrsSource:

UK equity crowdfunding investment into FinTechs totaled $37.9M in 2016, with 45% invested into crowdfunding platforms

Crowdfunding Platforms; 45%

Wealth Management; 22%

Money Transfer & FX; 14%

Challenger Banks; 13%

Digital Currencies & Blockchain; 4%

Capital Markets; 1% Data & Analytics; 1%InsurTech; 1%

FinTech deal value $37.9M

FinTech deal volume 18

Average % raised vs goals(FinTech

Companies)

140%

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ANALYST SUPPLEMENT

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2016 GLOBAL VC FINTECH INVESTMENT LANDSCAPE – ANALYST SUPPLEMENT


Investors

The most active FinTech investor in 2016 was the seed fund and start up accelerator 500 Startups with 39 investments. In June 2016, 500 Startups announced it was raising a $25m FinTech fund to invest in ~100 early stage companies globally

Accelerators Startupbootcamp (UK based) and Techstars (US based) were also amongst the most active global investors, with 36 and 30 investments respectively. Startupbootcamp has FinTech accelerators in London, Mumbai, New York and Singapore. Techstars has partnered with Barclays and has FinTech accelerators in New York, London and in 2016 launched programs in Tel Aviv and Cape Town

Exits

In contrast to 2015, which saw two large FinTech IPOs (Square and Worldpay), 2016 did not see any notable FinTech companies IPO, with several companies postponing them (e.g. SoFi, Elevate Credit Inc.)

2016 Exits were realised through M&A via trade or private equity. The largest exit was UK based data & analytics company Markit’s merger with US based IHS for $5.5bn

FinTech M&A activity is likely to increase in 2017 as the number of mature FinTech companies in the market increases

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2016 UK VC FINTECH INVESTMENT LANDSCAPE – ANALYST SUPPLEMENT


Investors

The top investors in the UK were Techstars and FinTech Innovation Labs – both US domiciled accelerators with specific London FinTech cohorts

46% of investment into the UK was from investors not domiciled in the UK, the largest of these being Europe at 19% and the US at 18%. Within Europe, large amount of investment from France and Germany – other notable FinTech hubs

UK accelerators

25% of the London FinTech accelerator cohorts in 2016 were RegTech companies, supporting the prediction that RegTech will emerge as an important FinTech vertical in 2017

Blockchain is also a top vertical (17% of the cohorts in both 2015 & 2016), indicating that this technology is still receiving investment and development attention on the path to wider industry application and adoption

Equity crowdfunding

Equity crowdfunding is performing not only as a strong and stable asset class in its own right, but also a growing vertical in the alternative finance industry

$37.9m was raised by FinTechs across platforms in 2016, with crowdfunding platforms raising 45% of the total FinTech investment through platforms. As the sector matures, we are more than likely to see other verticals seeking to capitalise on this new fundraising method

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http://ifgs2017.innovatefinance.com/

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APPENDIX

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APPENDIX I: VERTICAL DEFINITIONS Alternative Lending / Financing – P2P lending, invoice financing, SME financing, e-lending platforms, credit

scoring Capital Markets – innovation relating to primary issuance, securities trading, M&A, trade and advisory

services in a B2B Challenger Banks – new digital banks that are challenging the large established High Street banks Crowdfunding – platforms that allow investment for projects / companies / property Cyber Security - technology designed to protect companies infrastructure from attack, damage or

unauthorised access Data & Analytics – analysis of data within the financial industry to support data driven decisions Digital Currencies & Blockchain – digital ledger technology, in which transactions made in bitcoin or digital

currency are recorded chronologically and publicly Enterprise Software – software solutions for financial service industry Financial Inclusion – delivery of financial services to the unbanked / unbankable InsurTech – technology applied to the insurance industry Money Transfer & FX – money transfer, international remittance & currency conversion Payments – innovation in payments, including cashless, online / ecommerce, mobile, B2B, merchant / POS,

wallets, P2P, recurring RegTech – technology applied to resolve issues regarding regulation within the financial industry Wealth Management – innovation within pensions, savings, personal financial management, investment

platforms and management of personal assets and investments (e.g. robo-advisors)

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APPENDIX II: METHODOLOGY VC deal value figures include the deal types:

- Angel

- Accelerator / incubator

- Crowdfunding

- VC (all rounds)

- Private Equity (Growth/Expansion rounds only) VC deal value figures include all deals completed or announced (verified to press releases) in 2016 Deal volume figures include deals without a disclosed deal value UK VC deal value represents investment into FinTech companies which are Head Quartered in the UK

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END

the 2016 vc fintech investment landscape by innovate finance

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