THE BLOG

Tech City or FinTech City? We Have a Decision

19/08/2014 14:02 BST | Updated 18/10/2014 10:59 BST

A year ago, I wrote a blog post called 'Tech City or FinTech City?' which argued that the government's Tech City initiative should focus on spurring finance-specific innovation, rather than supporting generic technology companies. After all, London is the leading financial centre in the world.

Earlier this month saw the launch of Innovate Finance which has been created to "accelerate the UK's leading position in the global financial services sector, by directly supporting the next era of technology-led financial services innovators." The industry body was launched by George Osborne, Chancellor of the Exchequer and industry heavyweights such as Deputy Head of Level39 Claire Cockerton and, Alastair Lukies of Monitise - the latter of whom will serve as Non-Exec Chairman. The body has over 50 member companies including some of the leading lights of the London start-up scene and major corporates such as Barclays, Visa and Swift.

The government has shifted focus and has its sights firmly set on FinTech.

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It's not surprising. The sector is thriving. Earlier this month the UK Trade & Investment (UKTI) published a report that highlighted the strengths of the UK's FinTech sector. According to the report, since 2008 the value of FinTech investment in the UK and Ireland has increased almost eight times to US$265 million in 2013. This means the region is the fastest growing for FinTech investment globally.

What makes Innovate Finance compelling is that it is set up to act as a hub, and a "single point of access to key industry influencers, clients, technologies, talent, finance and international marketplaces." The body not only connects businesses, but policymakers, regulators, investors, educators, talent and commercial partners such as FCA Project Innovate, British Business Bank, TechUK and Open University. It has also been built iteratively over the course of a year with members of the 'Founding 50' and other key industry stakeholders to define the organisation's ambition and structure.

The whole idea makes sense. It brings together the industry and places a clear focus on financial services.

But the big question now is: what will it do? While Level39 has a clear focus, as does Tech City UK, and the various accelerator programmes, the specific objectives, plans and initiatives of Innovate Finance were conspicuous by their absence. For example, the launch announcement points towards "annual industry forum, policy roundtables and specialised innovation programmes" evidence of which doesn't seem to exist on the website...

In my mind, the biggest challenge for Innovate Finance and the industry as a whole is sustainability and the critical matter of IPO. According to research by industry publication Informilo, not only do UK-based venture-backed tech start-ups raise more money than those in either France or Germany, but over the past five years there were more exits by UK companies and the average deal size was greater.

This is all very positive. But one stat isn't. France completed three tech company IPOs in the five year period, Germany one. Unfortunately there wasn't a single IPO of a UK-registered venture-backed tech company in that period.

How do we create major FinTech companies that remain UK companies? It is hard not to notice that the majority of the multinationals that are members of Innovate Finance are foreign companies. In fact, Monitise is an oasis in an otherwise barren land in this regard.

Innovate Finance needs to support maturity in the FinTech sector. There is plenty of early stage funding, and increasingly more Private Equity funding for high growth companies. The issue is positioning these companies to attract major institutional investors.

This is where FinTech PR is important: helping high growth companies to act like public companies is essential in the run up to IPO. This is fundamentally about demonstrating that the company has the talent and customer base in place to execute on their vision, among other things. Check out our white paper on the role of PR in tech exits for more info.

To summarise, it's hard to argue against London being the FinTech capital of the world. However, for it to be undisputed champion it needs to solve the IPO problem. Only then will the UK "compete and prosper on a global stage."