Since early 2021, the UK market has seen a selection of industries explode with VC investor interest and has become the largest VC ecosystem in terms of deal value in 2022. The common thread among these companies is their categorization under the umbrella of “Other Financial Services” on the PitchBook Platform. Here we will explore the classification of “Other Financial Services” in the UK, the industries which comprise it and some noteworthy companies that exist within this space.
What are nontraditional financial services?
Nontraditional financial services or “other financial services” as they’re listed in the PitchBook Platform, is a denomination we use to distinguish a subset of service providers. This grouping includes consumer finance, holding companies, real estate investment trusts (REITs), specialized finance and special purpose acquisition companies (SPACs), as well as miscellaneous financial service companies. This grouping is contrasted by traditional groups within the financial service industry, which include capital markets and institutions, commercial banks, and insurance, each with their own subset of industries. Though a title like “other financial services” may suggest a less prevalent status, this segment represents over half the financial service companies in the UK, more than the three traditional service segments combined.
Deal activity in the UK
From 2011 to 2020, the other financial services category saw ongoing but mild growth, starting at £5.30 million invested across nine deals with different companies. While metrics like deal count and the number of involved companies followed a consistent upward trend, the amount of money invested by VC would seesaw across the years. Every peak year during this period was immediately followed by one with less than 60% of the capital invested the year prior, with 2016’s output being as low as 38% of 2015’s.
This market’s performance would radically change in 2021, however. While deal count went up by a respectable 54%, the even more notable statistic is the 511% increase in invested capital. With £2.77 billion invested in 2021 and 2022 on track to deliver similar statistics, signs point nontraditional financial services becoming a much more recognized industry among UK VC investors and an important sector to monitor in the coming years.
Nontraditional financial services definitions
With nontraditional financial services positioned to become an increasingly significant part of the UK market, it can be beneficial to understand the individual sub-industries that comprise it.
Consumer finance
Companies engaged in any kind of lending to consumers. Includes sub prime lending, among others.
Holding companies
Companies that do not produce goods or provide services, but instead own shares of other companies.
Real estate investment trusts (REITs)
REIT is a tax designation for a corporation investing in real estate. REITs receive special tax reductions and offer high yield investments in real estate.
Specialized finance
Companies engaged in providing specialized finance to both public and private enterprises.
Special purpose acquisition company (SPAC)
Publicly-traded buyout companies that raise capital through an IPO to purchase or gain a controlling stake in a company, which is then able to go public without the traditional IPO process.
Other financial services
Companies offering financial services not classified elsewhere.
Nontraditional financial services examples
The following are examples of companies in each of the different groupings within nontraditional financial services.
Prodigy Finance
Industry: Consumer finance
Last known valuation: £183.32M
HQ: London, England
Prodigy Finance is a loan provider for students enrolled in top business schools. Their platform connects students, alumni and institutional investors to collectively improve access to loans and financing opportunities.
Generation Home
Industry: Consumer finance
Latest deal amount: £1.30B
HQ: London, England
Generation Home provides mortgage lending services such as housing prenup contracts, integrated conveyancing, group payments and a dynamic ledger.
The Hut Group
Industry: Holding companies
Last known valuation: £1.40B
HQ: Manchester, England
The Hut Group is an ecommerce company and service provider with a focus on SaaS implementation. They assist online retail brands with hosting, content creation and translation services.
Heroes
Industry: Holding companies
Total raised to date: £145.04M
HQ: London, England
Heroes is an online retail company that acquires and operates medium-sized ecommerce brands, primarily those within the Amazon FBA ecosystem. It aims to scale businesses in high-growth sectors to create better exit opportunities.
Blend Network
Industry: REIT
Total raised to date: £144.52M
HQ: London, England
Blend Network operates a loan-lending platform for businesses and property developers. Their model aims to eliminate management and administrative fees, while delivering incentives to both businesses and lenders.
LendInvest
Industry: Specialized finance
Total raised to date: £1.04B
HQ: London, England
LendInvest is an asset management platform that provides development finance, short-term loans and buy-to-let mortgages to entities like developers, landlords and intermediaries.
Revolut
Industry: Other financial services
Total raised to date: £1.39B
HQ: London, England
Revolut manages a currency exchange and money-transferring platform for individual and enterprise clients. They also provide secondary services like tracking and optimizing recurring expenses and facilitating cryptocurrency transactions.
Checkout.com
Industry: Other financial services
Last known valuation: £29.81B
HQ: London, England
Checkout.com is an online payment platform designed to enable end-to-end payments without intermediaries. It also provides performance data to businesses and customizable risk settings.
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