Cashed-up banks poised to buy UK fintech firms on the cheap in 2023, says VC chief

Britain’s fintech sector will see a wave of acquisitions this year as cash-strapped banks and investment firms swoop in to buy struggling firms on the cheap, a top venture capital manager has predicted.

Tim Levene, head of London-listed venture vehicle Augmentum Fintech, said banks had failed to transform digitally over the past decade and were now looking to short-cut innovation with a flurry of fintech deals.

“I look at the balance sheets of the banks and the insurance companies and the asset managers, and they’re sitting on a lot of money, a huge amount of cash,” he said By AM in an interview.

“I would say the vast majority of the hundreds of millions that have been deployed and digital transformation [by traditional finance firms] have been wasted, and therefore they must acquire, and acquire sensibly. I think we will see more [deals]because the valuation has relatively fallen, said Levene.

High-growth fintech firms suffered sharp falls in valuations last year as venture capital investment dried up amid sharp interest rate hikes and a closed exit market.

Prices fell across nearly all stages of the 2022 fundraise, with particularly sharp falls in mid- and late-stage valuations. Series D and later funding rounds saw value decline by 27 percent in the third quarter of the year, bringing them down to nearly 2020 valuation levels, a recent report from data firm CBInsights found.

Levene said the slowdown in funding is likely to continue in the first quarter of this year as VC firms stay out of turbulence and large institutional investors, who poured into the market in a funding frenzy in 2021, pull back.

“I think you’ve seen some pushback from states, from hedge funds, the big names who have the notion that you can hack venture capital and invest billions in a short period of time to spread your bets and pick the winners. ” he said. “I think [that] has proven to be a failure.”

Fintech funding in the UK fell eight per cent last year to $12.5 billion amid a global slump in funding, data from industry body Innovate Finance found last week.

Augmentum was hit by the downturn in the market last year, swinging to a pre-tax loss of £1m for the half year to the end of September from a profit of £30.5m the year before.