I hope you’ve had a good week. Quite a quiet one – if you discount the rash of scandals.
But sticking to the realms of finance, the digital-only banks have been busy this week, with Revolut applying for a European banking licence and Monzo raising £71m. I haven’t gone into these below, but worth having on your radar.
Please feel free to get in touch with any feedback or stories you’d like me to cover.
PARADISE PAPERS: MORE BORING THAN BREXIT
There was a good headline in the Telegraph on Monday from Richard Dyson: “Don’t we all invest through a Cayman Island tax haven these days?”. If you contribute to an Isa, if you’re building up a pension, if you pay into an endowment policy or other kinds of investment plans, if you give to charities, your money will be spread across numerous different portfolios, buying thousands of different individual investments based all around the world, points out Dyson. It’s just the more money you’ve got, the more you can – legally – shield from the taxman.
I think we’ve established that tax regimes will always play catch-up with technology and, perhaps, reality. After all, while innovation improves our lives, taxation is a ham-fisted and inefficient way to fund things we need, and other things a small group of people think we should need.
I found myself wondering how journalists found the time to accurately sift through the 13m documents, before discovering that it’s thanks to a Swedish big data startup called Neo4j, which counts Nasa and Ebay among its clients and was responsible for sifting through the Panama Papers.
I’d be more concerned about new privacy and data laws than the wet dream that is a global tax regime.
FINTECH INVESTMENT ALMOST DOUBLES IN THE US
This is an impressive figure: investment in US fintech companies nearly doubled, from $2.6bn (£2bn) in the second quarter of 2017 to $5bn (£3.8bn) in the third quarter. That’s from KPMG’s Pulse of Fintech report and is put down to robust VC funding, an increase in deal value and strong performance from the private equity sector.
If you look at the numbers, it was big deals that drove investment over the period. Globally, fintech investment hit $850bn, and the US accounted for half of the largest deals, including Intacct (an $850m M&A deal), CardConnect (a public-private M&A deal at $750m) and Xactly (which saw a secondary buyout for $564m). In contrast, year-to-date median deal sizes for later-stage deals dropped dramatically. In 2016, the figure was $23.5m; this year it was $11m. KPMG’s Brian Hughes said to BusinessInsider that, while fewer firms have seen funding or an exit, the ones that have are of higher quality than in the past.
The report also contemplates things like whether Asian fintech hubs are the future, and if blockchain is about to become production-capable. It highlights robo advisory and regtech as the sexy categories all investors want in on. But it strikes me that we’ve been asking the same questions and getting excited about the same sectors for a couple of years now. I wonder what the next big thing will be?
UK TECH FOUNDERS’ AMBITION GAP
Fifty six percent UK tech founders expect to sell their business for £50m or less. So says a new report from VentureFounders, the equity investment platform, done in partnership with Coutts and research firm Beauhurst.
Ambition Gap, which asked 100 founders of UK tech scale-ups about exiting their businesses, uncovered three key things: first, most UK tech founders intend to sell quickly – within 2-5 years – despite recognising the risks of exiting too early. Second, in addition to being prepared to sell for under £50m, most think their buyer will come from overseas. And third, the longer a company has been generating revenue, the lower the valuation they expect to get on exit.
Reports like this one always come back to the funding question. We know there’s an issue with funding scale-ups – VCs tend to leverage existing investments rather than funding new prospects. And it’s plain that there are problems with the VC relationship post-funding. Many young founders can’t take money off the table, so are left busting their guts on a baby they can’t benefit from until they sell (which perhaps partly explains why they often do just that early on).
If we do want to be more like Silicon Valley and America (remembering that the US economy is seven times the size), we need many more entrepreneurs becoming VCs – not just angel investors. And that means they need to be encouraged to stay on and keep growing their own firms, and aim for a valuation that will give them a decent pot of cash to play with.
WHAT’S PLAYING AT OFF3R HQ?
This week we have been listening to the great podcast Masters of Scale. The latest episode features Silicon Valley pioneer Peter Thiel talking to Reid Hoffman about PayPal and how they set out not to just beat the competition but to break free of it.
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