Increased regulations in Europe has raised the bar and is leading to great opportunities for investors, according to Dawn Capital general partner Haakon Overli in a research interview with FinTech Global.
The European FinTech sector raised over $6bn last year, making it the third biggest region for funding. Asia received the second largest amount with $13bn invested, and North America led the way, with a colossal $17bn injected over the year. While Europe is significantly smaller, its share has been growing since 2014, in contrast to North America which has seen a fall in its hold.
There are a lot of opportunities available across Europe and innovation in the financial services has been increasing. While the US has been able to dominate for quite some time in consumer software, companies like TransferWise are showing the strength of Europe. Overli believes one of the aspects which makes the European market attractive is its level of regulations, as it brings out new solutions but also help local VCs have an advantage over international ones.
He told FinTech Global, “Typically, European financial services there is a higher regulatory hurdle, so it’s been very difficult for US entrants to come here and take advantage. There is a lot of opportunity now that regulations like GDPR are raising the bar higher so there’s a lot of attraction in European FinTech which is going to lead to some great companies coming out, and I’m confident about that.”
In 2014, Europe accounted for 9.7 per cent of total FinTech investments, and this increased to a 16.4 per cent share last year. In the same period, North America declined from 70.9 per cent down to 45.3 per cent, last year.
A ‘virtuous cycle’ has been one of the big drivers of the region’s appeal, he said. Experienced entrepreneurs that have already founded a FinTech company and are now creating their next, and capital supplied by VCs which have also been through the same cycles, have helped this cycle. Alongside this the region has attracted both junior and senior staff due to the number of success stories.
Aside from the UK, Overli states funding is fairly evenly split across the region, with the Nordics, Germany and France all having strong sectors. Around half of venture funding in Europe goes to the UK and he believes this is down to the country’s strong cycles, and environment, “It’d take a lot for the UK to lose its market share. This is one of those things that is growing together [across Europe], but the UK keep its share for quite a while.”
Between 2014 and 2017, the top four European cities, in terms of the number of deals, were London, Stockholm, Berlin and Paris. In relation to these four cities, London has held between 60.8 and 69.8 per cent of the deals over this period, with its lowest value occurring in 2016. Last year, it held 65.3 per cent, with Stockholm having the second biggest share with 13.3 per cent, then Berlin with 11.2 per cent and Paris was the smallest with a 10.2 per cent share.
Overli does believe Europe will hold a leading position in the future of FinTech, with its strong routes, “It will continue to punch above its weight in terms of FinTech outcomes,” he added. The sector is going to continue to grow across the world with them becoming a bigger part of the financial services industry and providing new services for consumers.
“There are going to be more companies starting, more successes, more people working in it, taking fewer people working in traditional financial services and more in what you would call FinTech. This is a mega trend that will continue.”
Last month, Dawn Capital held the $235m final close for its third venture fund, to invest in B2B companies across Europe. The firm increased the hard cap of the vehicle twice due to it being heavily oversubscribed. Over £50m of the capital was supplied by the European Investment Fund, while other contributors included the British Business Bank.
The firm is attracted to the B2B industry as it has been typically underserved and is hard for companies to find the right products, so it offers a big untapped market. AI and machine learning technology has become a major development not just across FinTech but most sectors, and has been implemented to support many businesses with their offerings. However, Overli does not think AI and machine learning can no longer be a solution in itself as it has become such a big part of most businesses.
Overli said, “The overarching thing is that you need to have a strong proposition that is augmented by AI and machine learning. I don’t think there is a market anymore in itself in just developing machine learning and Ai because there are just so many tools already out there.”
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