Fintech & AI Dominating Equity Investments

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Beauhurst’s recent research paper, The Deal 2019, reveals that Fintech (Financial Technology) and AI (Artificial Intelligence) companies continue to dominate equity investment, together attracting 20% of all deals.

In fact, Fintech and AI secured a record number of equity deals in 2019 – 191 and 157 respectively – an increase of 11% and 5% from 2018.

Moreover, these deals were high in value (and increasing). A total of £3bn was invested into Fintech (£1.7bn) and AI (£1.3bn) in 2019.

This investment into AI, in particular, is a staggering number, when you consider that total investment into AI was just £6m in 2011. But what are the drivers behind this massive interest?

Firstly, in Fintech, young people have become even more interested in investing in stocks. 89% of people aged 18-35 in the US, Canada and Europe invest.1

Meanwhile, the development of new technology which continues to reshape the archaic financial sector is enhancing its appeal to both younger people and sophisticated investors.

Both new and incumbent companies have realised the high potential of providing young people with simple and attractive trading and financial technologies. Hence, we are seeing the continued rise of Fintech and clever start-ups within the sector, as well as a growing movement from the incumbents to take strides in the space.

Companies like Australian Stake and British Freetrade were founded with an ambition to support young and typically non-experienced investors, and this ambition has led to other Fintech innovations within our everyday banking and financial lives. Challenger and Digital banks are fast becoming the norm and not the exception.

This fertile ground for Fintech companies has also led to increased competition for young investors in the fintech space. Fintech start-ups compete in attracting young clients by offering cheap and simple investing opportunities with companies they know and trust. Increased Fintech competition is a good sign that marks significant progress in popularising stock market investing among young people.

Consequently, traditional institutions like banks and stockbrokers are in danger of being left behind by fintech start-ups.

Along with Fintech, AI is continuing to gain traction in investment and its popularity is expected to grow at pace, with technological advances.

At the core of AI is the ability of machines to process and interpret huge quantities of unstructured data in a way that people cannot, which is incredibly valuable.

The exponential growth of data, the rise of an interconnected world (social media, mobile devices, Internet of Things), and the depreciating cost of computing power have all accelerated AI growth and will continue to do so, particular as 5G looms.

AI enables us to make more informed decisions and achieve better results, providing enormous potential in a variety of other sectors.

For example, in healthcare, AI can lead to breakthroughs in diagnostics and R&D, and in manufacturing, it can increase production controls and efficiency.

Combine AI with Fintech and the potential to benefit financial services is vast.

Asset managers are now realising that they must embrace technological development or risk being left behind. 69% of asset managers are utilising AI to assist with investment decisions, while 66% believe AI will disrupt the status quo in relation to workflow and portfolio management tools.2

All of this points to a significant increase in fintech/AI crossover investments in the coming years. In fact, Beauhurst found that there were already 17 Fintech/AI crossover investments to businesses in 2019, the second-highest AI crossover just behind Big Data with 22.

These findings suggest that the rise of Fintech and AI in the equity investment space will continue to dominate through the 2020s.

1. https://www.fintechfutures.com/2020/01/reasons-behind-the-rise-of-fintech-companies-popularising-stock-market-investing/
2. https://www.fitchsolutions.com/sites/default/files/white-papers/Navigating%20the%20Cycles%20Whitepaper_0.pdf

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