EXCLUSIVE: “Angels (and VCs) of the North” – Fintech North in ‘The Fintech Magazine’

As investors and founders gathered at the FinTech North Summit, we look at the regional investment market and what makes for a good pitch in poor times

It wasn’t as dramatic as some feared, but a hike in capital gains tax announced by the new UK government in its first Budget in October was nevertheless a bitter blow for those who’ve worked so hard to build an investment community in the north of England.

They’d already fought off one ill-thought through plan this year – hatched by the previous administration – to increase the earnings qualification threshold at which individual investors, or Angels, could be invited to back the region’s entrepreneurs. That would have reduced the number of eligible female investors to precisely zero in the North East, and by 70 per cent to just 3,000 in Yorkshire & Humber, achieving a magnificent double blow to both diversity and access to capital in an area of the UK where there’s been a pronounced ‘capital gap’ for decades (especially in that crucial early stage investment period where patient Angels are key).

It’s all very well pulling your business up by your own bootstraps, but they’re a lot shorter here. The North has the lowest median earnings across the whole of the country, which means there are a lot of early-stage companies with good, but cash-poor founders seeking investment, and a comparatively small pool of individuals from whom to ask it. Coupled with the change in tax rules – which, as Sarah Coles, head of personal finance at Hargreaves Lansdown says, could make investment ‘less attractive for newcomers who don’t want to have to get to grips with a new tax risk’ – that means any founder seeking funds locally has to have a standout pitch and a platform as tall as the Blackpool Tower to pitch from.

Held a couple of weeks before the Chancellor’s potential round-raising dampener, the FinTech North summit in York’s magnificent Merchant Hall, was (perhaps deliberately, given rumours around the government’s plans) focussed on helping the sector’s regional entrepreneurs achieve their capital-raising goals.

Acknowledging that there had been ‘dramatically obvious’ deal drop-off since 2022, Peter Cunnane, director of national and International Initiatives at Investment UK, rallied founders with ‘reasons to be cheerful’. He said £2.02billion had been invested into UK fintech business in the six months of the year, half of which had been landed by female entrepreneurs. Along with the rest of global fintech, inward investment was significantly down on 2023, but the good news was that the UK remained the second largest fintech hub and there were now signs of improved capital flow – the principal beneficiaries of which had been asset management and payments.

That’s reflected in a recent report, Scaling UK Regional Fintech, which also noted that wealthtech and payments account for the largest number of scaleups among fintechs outside of London, although it’s proptech firms that are most likely to raise funding. The report, produced by Innovate UK, Streets Consulting and the founders of FinTech North, Whitecap Consulting, was based on research among 250 regional fintechs.

Among several insights, they observed: “Raising investment wasn’t seen as a badge of honour. It was acknowledged that external funding can drive accelerated growth, but the entrepreneurs urged caution about chasing large valuations, taking too much funding, and losing control of the business.”

While investors may be thin on the ground in the North of England, inward investment manager at West Yorkshire Combined Authority Tom Purvis still urged founders to exercise discretion when choosing one.

“Getting bad money out of your cap table is a pain, so choose the cap table wisely”

“All VCs will tell you they will help you grow,” he told the summit. “Term sheets are full of allthe wonderful things that they can do for you. But be a bit cynical of that. Unless they can point to a programme to show ‘that’s how we helped them’, they probably haven’t helped them that much.

“In an investor relationship, stuff is going to go down. Could you WhatsApp them at nine o’clock at night and know they will roll up their sleeves and help you out? Go and ask some of their portfolio companies that have folded and ask them. Getting bad money out of your cap table is a pain, so choose the cap table wisely.”

Ben Davies, group marketing director at Praetura Ventures, a VC firm, based in Manchester, focussed on early stage; companies, observed that, in the initial stages of chasing capital ‘founders can be a bit of a sponge. You need to hone your ability to distinguish good advice’.

So, his was to ‘cast your net as wide as possible’ and use failed pitches as a stepping stone to build much more valuable relationships.

“The founder of Softbank-backed Peak [one of Praetura’s portfolio companies] made a list of 200 investors and started with the ones he didn’t really want and chipped away, getting all the feedback along the way, so when he got to the ones he really wanted he was bulletproof and had nailed that process. That’s what I would encourage founders to do,” said Davies.

Ant Barker, director of venture capital from Aviva, agreed it was essential for a founder to understand what they want from an investor.

“When you’re talking to them, be really clear what unfair advantage they can bring – maybe it’s in their network or access to expertise that can build out your product or solution?

“Also show you know who your consumer is, what success looks like and really showcase your team because a big part of early investment discussion is around ‘is this a team we can back?’.

“Investors’ minds and metrics have changed,” he added. “Historically, in fintech it was ‘how do you get to as much revenue and as many consumers as possible?’, irrespective of what the economics looked like. Having a path to profitability, or a realistic, credible route over a reasonable timeframe is what’s important now. That’s quite a shift.”

Rangeteller

Daniel Goldstone and his co-founder at RangeTeller set out to build an algo trading framework and ended up solving a consumer credit problem. Its machine learning helps lenders move beyond the ‘take it or leave it’ credit score to create a decision-making tool that can look at historic lending data and assist them in creating a bespoke risk parameter. The framework’s components – ML, witha transparent and explainable protocol and human in the loop – were originally designed to be used in the regulated investment community.

But when the developers saw how many loans banks were rejecting because they didn’t have sufficient insight into their own data, they pivoted. In a pilot, out of 11,000 people that a lender had previously rejected for a loan, the AI identified that 55 per cent could have qualified.

“That’s 6109 people they can go back to and issue $4million in loans to,” Goldstone told the Summit. “We are starting the with personal loan market but we see massive opportunities with mortgages, car loans, tenant evaluation and insurance. We don’t need another credit score, we need a more flexible system.”

Earthchain

Dan Graf founded Earthchain, a fintech/climatetech hybrid, following a 20-year career in payments, including senior roles at ACI and Credit Suisse.

In 2020, he exited Infraxis AG, the Swiss paytech he’d co-founded, following its acquisition by TAS International SA for €18million, and is currently studying for an MSc in sustainable development at Leeds University. Graf is doing things slightly differently as a second-time entrepreneur.

“We bootstrapped [Infraxis] all the way through,” he says. “And one of the mistakes we made was that we didn’t discuss the exit strategy – that was a question we addressed at Earthchain on day one!”

Earthchain positions itself as a platform to manage and report on carbon emissions across a business’s value chain.

“There are 270 carbon accounting tools out there and it’s very difficult for SMEs to choose one that’s the right fit,” says Graf. “Almost all of them are glorified spreadsheets – what we do is take raw, unstructured data – from a flight confirmation email for example – and turn it into detailed carbon reports in line with international disclosure standards.”

For companies who by choice – or, increasingly by regulatory or stakeholder pressure – want to understand and reduce their own emissions and emissions in the supply chain, that saves a whole lot of work. In one trial, it reduced a small company’s data input time from four days a month to just one minute. The program can identify gaps in data, where companies might look to find it, help manage their carbon offsetting, and come up with carbon-saving suggestions.

Already integrated into the small business accounting platform Xero, Earthchain knows its quickest route to market is embedded into payment processing, banking and fintech services for business users, and it’s open to partnerships.

“SMEs are responsible for 50 per cent of the UK’s business-related carbon emissions and SMEs make up 90 per cent of businesses in the UK,” says Graf.

“If we’re serious about tackling it, we have to get this automated.”

This article was published in The Fintech Magazine Issue 33, Page 37-38