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Investment in fintech: the eye of the Brexit storm
The negotiations between the UK Government and the European Union over the terms of the UK’s exit have begun in earnest.
A huge volume of media commentary accompanies every meeting. The eventual outcome will impact upon the lives of everyone in the UK.
The economy has always been front and centre of the debate; 'remainers' and 'brexiteers' continue to contest fiercely how the departure should be managed in the best interests of UK plc.
One thing is certain however - the process will continue to place significant demand on UK Government resources until it concludes.
Yet business cannot and must not wait for negotiations to be finalised. Although it is too soon to make a definitive judgement on business investment, early analyses have often been conflicting.
The Confederation of British Industry (CBI) asserts that Brexit is negatively impacting upon business investment, for example, whilst analysis from the Financial Times suggests that business investment is exhibiting resilience.
One of the reasons identified for this has been the continued ability of businesses to borrow at historically low rates of interest. This is typically good news for established businesses with trading histories, but less encouraging for early-stage businesses that often find it more difficult to borrow from traditional sources.
Sources of SME investment
SMEs with high-growth potential need to get their products and services to market and capture the value held within the commercial opportunities they have identified.
In this context, data collated and published by OFF3R last week offer real encouragement - equity crowdfunding reported record investment in the first half of 2017.
Private companies raised almost £130m in the first six months of 2017; over £2m more than the previous best half-year return, recorded in H2 2015.
If this is matched in second half of 2017, it will represent a 19% increase on total 2016 investment, which itself was a 9% increase on total 2015 investment.
Equity crowdfunding is becoming an increasingly vital source of investment for early-stage businesses. It is also a valuable component of the FinTech sector that itself attracted record levels of investment in H1 2017; £769m compared with £658m in H1 2016.
This alone suggests that disruptive technologies will continue to represent an attractive investment proposition.
Benefits of co-investment
Online platforms, such as GrowthFunders, enable everyday retail investors to invest in businesses they have confidence will increase in value in the future, alongside professional and institutional investors.
These everyday retail investors are more likely to be motivated by personal financial considerations, such as tax efficient investing. This contrasts with institutional investors, who are more likely to incorporate an analysis of prevailing macroeconomic conditions.
Ultimately, the relationship between different investor groups should be symbiotic - institutional investors bring experience and scale, professional investors bring insight and direct involvement, and retail investors bring enthusiasm and brand advocacy.
Of course, Brexit will continue to command huge media attention and the eventual terms of the UK's departure will have a material impact on the UK business landscape.
The speculation in the interim risks being an unwelcome distraction, but the H1 2017 growth in both equity crowdfunding and investments in the fintech sector demonstrates the continued vitality of these two propositions.