Startup Funding For FinTech Companies

The Covid-19 pandemic has greatly impacted the real estate sector, with traditional methods involved with buying, renting or selling property no longer working. As a consequence, there has been an increased demand for digitisation in the PropTech sector and businesses sourcing funding from all avenues.

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What is FinTech?

PropTech is an abbreviation of Financial Technology. The aim of organisations within this industry is to improve the delivery of financial services through the use of technology. FinTech became popular with the rise in online banking, and companies frequently aim to help businesses optimise their financial operations.

FinTech is now popular for customer-orientated services, whereas originally it was only used inside a company’s own systems. Whilst FinTech companies are currently most profitable within the banking sector, they have now expanded to include usage and development of crypto-currencies.

Where Do FinTech Companies Find Funding?

FinTech companies can source funding through traditional means such as organising funding rounds or crowdfunding campaigns. Both angel investors and venture capitalists can invest in FinTech companies, but there are also schemes available to provide funding specifically for the FinTech industry. These schemes can be organised by the government or other institutions looking to support startups within the sector.

How Do Startups Traditionally Source Funding?

Startups, including those in the FinTech industry, can source funding through running crowdfunding campaigns and funding rounds. Initially, the founders of a company typically invest their personal savings, referred to as the pre-seed funding round.

The seed funding round is the next funding round to take place. During this round, additional investors can inject capital into a business, such as venture capitalists, angel investors or friends and family of the founders. Series rounds, referred to as A-D funding rounds, are the next to follow. A company can continue running these funding rounds until they have generated all the investment they require.

Angel investors will invest in a company in return for shares, meaning that they will hold a percentage of the company and therefore any profits made. These are individuals with a high net worth who will be searching for companies that they believe have the potential to generate large profits.

Venture capitalists are private equity firms who seek to invest their companies funds in startups which appear promising. They typically invest into a startup in return for equity shares. The key difference between venture capitalists and angel investors is that venture capitalists will have access to any liquidated assets if the startup goes bankrupt.

Companies can also run crowdfunding campaigns in order to source funding. These campaigns have the ability to attract customers and investors simultaneously as they take place online, and therefore can attract a large number of people at once.

Where Else Can FinTech Companies Source Funding?

FinTech companies will be able to access funding from specific organisations or institutions which is specific to their industry. The UK government offers a funding scheme called the Future Fund, which supports startups in the FinTech industry. The scheme was established during the Covid-19 pandemic, and the funding invested comes from the UK taxpayer.

This consequently means that the UK taxpayer now holds shares in each company which has received an investment so far. 25 companies have received an investment through this scheme so far, with the Future Fund planning to continue accepting regular applicants for the funding.

What Do FinTech Companies Use Funding For?

FinTech startups can use funding for traditional means, such as conducting market research and product development alongside employing staff or making asset purchases that the company needs to progress.

Companies operating within the FinTech industry will also use funding to obtain the necessary licenses and documentations required. In addition to this, companies will also use the funding to develop new technology and obtain the authorisations to integrate any potential software with external organisations.