london leads growth in regtech investments. research by fintech global, jan 2017

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London leads growth in RegTech Investments

Research SummarySector: RegTechGeography: GlobalJanuary 2017www.FinTech.Global

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Summary

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• RegTech investments have more than tripled over the last five years

• 2016 saw two record quarters for RegTech investments

• London has established itself as the global leader in RegTech deals

• The top six RegTech deals in London raised $65m in 2016

• Three of the most active RegTech investors are based in London

• Growth is being fuelled by an increase in investments in anti-fraud companies

• London is expected to maintain its leadership position

• Investors and innovators expect growth to continue


RegTech investments have more than tripled over the last five years

Investments in RegTech companies have grown by a multiple of 3.5 times over five years:

• Investments in RegTech companies have grown by over 38.5% (C.A.G.R) between 2012 and 2016.

• Last year a record $678m was invested in 70 companies, compared to $185m in 32 companies in 2012.


2016 saw two record quarters for RegTech investments

2016 was a record year:

• 21 deals completed during Q1 made it the most-active quarter for the space to date.

• Q3 saw a new record for the total amount invested in a single quarter with $305m invested in 19 deals.

• Total volume in Q3 was boosted by several large deals: $96m raised by Avalara from Sageview Capital, TCV and Warburg Pincus; and $40m raised by Skyhigh Networks.

• Q4 saw investors holding off due to the uncertainty around the US elections.


London has established itself as the global leader in RegTech deals

London takes the top spot for the city with the most RegTech deals over the last five years:

• 39 investments were made in London-based RegTech companies between 2012 and 2016.

• The next six cities in the ranking are based in North America.

• Tel Aviv follows in eighth place with four deals.

• Dublin and Paris are the only other European cities to appear in the top 10.


The top six RegTech deals in London raised $65m in 2016

The six largest RegTech deals in London last year raised over $65m from some of Europe’s leading venture capital firms:

• Onfido raised $25m Series B round led by Idinvest Partners.

• OpenGamma raised a $13.3m Series D round led by Accel Partners and ICAP

• Featurespace raised $9m from TTV Capital.

• ComplyAdvantage was backed by Balderton Capital, which invested $8.2m.

• Elliptic raised $5m Series B round from Paladin Capital Group, Octopus Ventures, Santander InnoVentures, KRW Schindler and Digital Currency Group.

• Encompass collected $4.7m from Adcock PE and Scottish Investment Bank.


Three of the most active RegTech investors are based in London

The majority of deals financed in London are early-stage:

• Three of the top 10 most active RegTech investors (in terms of numbers of deals) are based in London

• These top three investors are accelerators - Techstars, Wayra and StartupBootcamp – that made small investments of average size $0.07m


Growth is being fuelled by an increase in investments in anti-fraud companies

Backing for anti-fraud companies has overtaken compliance-focused companies:

• Investments in companies in the anti-fraud sector have jumped from $82.2m in 2014 to $334.8m in 2016.

• As a subsector of RegTech it has

increased from 14.1% of all investments to 49.4% in 2016.


Investors and innovators expect growth to continue

According to active participants in the RegTech sector the outlook for further growth is very positive:

• Financial institutions will continue to face ever-increasing regulations, accompanied by spiralling costs and complexity.

• The scale of the opportunity is anticipated to be large and could generate very high returns for the companies that win the space.

“RegTech is going to be a very big area and whoever the winner is will have a sustainable business model because the law dictates that businesses like these need to exist. It doesn’t depend on preferences, it’s a very defensible investment and in that respect, you see VCs actually hedging their bets against multiple different approaches.” Radboud Vlaar, Partner, Orange Growth Capital

“It’s a hard problem that hasn’t been cracked. The incumbents tried for many years and they failed, but now there are technologies coming out like big data and machine learning, which are all being applied to this problem.” Charles Delingpole, CEO, ComplyAdvantage,

“Over the past 20 years the greatest amount of disruption has been around unregulated industries. commerce and communications have been the hallmarks of most technological advances. But the next 20 years of the disruption is around regulated industries such as finance, biotech, education, logistics. These companies all need some sort of contact with a regulator and they will scale very differently than the businesses that aren’t regulated.” Damian Kimmelman, CEO, Duedil

“RegTech is going to be a very big area and whoever the winner is will have a sustainable business model because the law dictates that businesses like these need to exist. It doesn’t depend on preferences, it’s a very defensible investment and in that respect, you see VCs actually hedging their bets against multiple different approaches.” Jamie Miles, business development manager, Onfido


London is expected to maintain its leadership position

London is expected to stay ahead of other cities:

• London has distinct advantages over other cities that will continue to attract the majority of RegTech investments in Europe.

• It’s still early days for the sector, which is why so many deals are early stage, but deal-size is expected to grow as the industry evolves.

“Over the past 20 years the greatest amount of disruption has been around unregulated industries. commerce and communications have been the hallmarks of most technological advances. But the next 20 years of the disruption is around regulated industries such as finance, biotech, education, logistics. These companies all need some sort of contact with a regulator and they will scale very differently than the businesses that aren’t regulated.” Damian Kimmelman, CEO, Duedil

“It’s not easy to build a RegTech company. You can’t launch anything that’s half-baked, you have to invest a lot of money and time to get it up to standard. There’s a minimum viable standard of a company that’s very high. You have to spend a lot of money to build it before there’s any uptake”. Charles Delingpole, CEO, ComPlyAdvantage

“Investment is not necessarily the best indicator at this stage. It’s about allowing startups to validate their proposition to show that it works and that there is an industry capable of implementing what they see. Investment will follow. There aren’t that many late-stage regtech companies to invest in, give it a couple of years and it will be very different.” Nektarios Liolios, CEO, Startupbootcamp Fintech Programme

Further interviews with experts in RegTech are available to subscribers on the FinTech Global site

london leads growth in regtech investments. research by fintech global, jan 2017

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