There has never been a better time to become a fintech entrepreneur
The barriers are higher than in 2008, but this market downturn presents a unique opportunity for a new generation of fintech entrepreneurs, writes Jed Rose, Partner, Antler.
Image source: Pexels/Alexander Suhorucov
The UK’s position as the global capital of fintech innovation was born in the fallout from the 2008 financial crash.
As the country faces a potential recession 14 years on, there is a sense of cautious optimism that aspiring fintech entrepreneurs will find opportunities in the current economic uncertainty and create a new generation of UK fintech unicorns in the process.
However, would-be fintech entrepreneurs starting their entrepreneurial journey in 2022 face a landscape that would be almost unrecognizable to their predecessors.
The first generation of UK fintech startups took advantage of a unique moment in time. Armed with technological skills and a simmering fury about financial services excesses, disillusioned bankers from Canary Wharf took to Old Street and unleashed the new efficiencies of digital innovation on traditional banking practices for the very first time.
The iPhone had launched the year before, and consumers were beginning to adopt online banking on a large scale. This was a global market ripe for digital disruption, and widespread redundancies following the financial crash made London an epicenter for talent.
These ex-bankers and emerging fintech entrepreneurs also had generous severance packages that supplemented the lucrative salaries they already had – and gave them the freedom to operate without the practical worries of not being able to pay the bills.
The landscape in 2022 is clearly very different. Potential founders hit by the cost of living crisis, rising inflation and mortgage interest rates have to make very different decisions than those who created startups 14 years ago.
Despite arguably higher barriers to entrepreneurship than ever, I would argue that there has never been a better time to become a fintech entrepreneur in the UK. If 2008 started a UK fintech revolution, 2022 could create UK fintech companies achieving even greater long-term global success.
Despite the growing economic turbulence, we’ve actually seen applications from potential founders increase by almost 20% over the past six months for our housing program where we pay people to leave their jobs to start a business. These founders are technical experts who come not from banks, but from fintech companies and scale-ups that want to seize this once-in-a-generation opportunity to build a new business to solve the new, significant problems facing society in a period of great uncertainty.
They represent highly skilled technology talent with first-hand experience creating products within high-growth fintech companies. Traditionally, European unicorn entrepreneurs enjoyed successful careers in banks or consultancies before pursuing startup ambitions. Now, after more than a decade of growth in the European tech ecosystem, we are seeing tech companies produce the next generation of tech founder talent.
Fintech founders in 2008 also entered a market that was not equipped to provide growth capital to early-stage technology companies. SEIS and EIS were not yet established and there were a handful of venture capital firms across Europe.
Now there is more capital available to early-stage entrepreneurs than ever before. And while the tech downturn has stalled the “mega-rounds” that drove tech investment to record highs in previous years, we’re seeing remarkable resilience in early-stage investment activity.
The UK government’s recent announcement which extended SEIS to further encourage investment in new UK businesses will see more startups being formed. Institutional investors are also shifting to earlier stages across a broad portfolio to better diversify their holdings against the declines seen with later stages.
VC firms must deploy their capital within a specific time period, and they see early stage investments as a likely valuable source of portfolio growth during this period of economic uncertainty. If most downturns last between two to three years, supporting early-stage companies with a diversified strategy can play a valuable part of your overall portfolio strategy for the life of the fund.
Within this context, new fintech unicorns will emerge from this recession. If potential founders can embrace the risk of leaving more reliable positions during a cost-of-living crisis, then they have significant opportunities ahead of them.
This combination of more capital, more experienced entrepreneurs, unique opportunities for disruption and low costs of establishing a business mean that there is significant growth potential.
For the fintech entrepreneurs who can navigate this complex economic situation, there is every chance for 2022 to inspire the creation of the next great UK fintech unicorns.
The views and opinions expressed are not necessarily those of AltFi.
