Chris Middleton explains why the US is winning the FinTech race by backing ventures across 35 states with millions of dollars. The UK must take note.

While media coverage often focuses on the FinTech powerhouse of London, UK entrepreneurs should be wary of resting on their laurels: the sector is gaining powerful momentum within the already dominant US.

According to tech market analysis firm CBInsights, last year venture capitalists invested $46 billion in US FinTech startups across 2,800 deals — a 92% year-on-year uptick in funding. That gives us an average investment figure of over $16 million per deal.

But while the UK’s fast-consolidating sector tends to be based in the capital, the US FinTech industry is booming across 35 states – 70 percent of the country – rather than just in technology hotspots such as California and Texas, or financial centres such as New York.

CBInsights listed the highest-backed startup in each of the 35 states where the US FinTech sector is booming – which the company defines as players receiving more than $5 million in equity funding. Collectively, those states’ number-one invested companies have raised over $9.5 billion.

The survey found that even the lowest invested of those companies – Indiana’ s Allied Payment Network – received backing of $6.6 million. Only three startups on the state-by-state list of biggest winners have raised less than $10 million.

The most well-funded US FinTech startup by state is California’s personal finance platform SoFi, with a market valuation of $4.8 billion and $2.5 billion in disclosed equity funding. It is followed by New York-based health insurance player Oscar Health, with a valuation of $3.2 billion and $1.3 billion of investment.

Outside of these two familiar hotspots, there are six other unicorns among the top-funded companies by state:

  • Ohio’s Root Insurance, valued at $3.6 billion (with $509 million in equity funding)
  • Massachusetts’ Toast ($2.7 billion, with $503 million in investments)
  • Illinois’ Avant ($1.9 billion, $655 million)
  • North Carolina’s AvidXchange ($1.2 billion, $724 million)
  • Georgia’s Kabbage ($1 billion, $490 million)
  • Kansas’ C2FO ($1 billion, $400 million)

Across the 35 states, half of the top players have raised over $100 million in disclosed equity funding. Apart from the startups listed above, these are:

  • Minnesota’s Bright Health ($440 million in investments)
  • Washington’s Remitly ($312 million)
  • Utah-based Divvy ($253 million)
  • Rhode Island’s Upserve ($191 million)
  • Texas-based Alkami Technology ($174 million)
  • Missouri’s PayIt ($133 million)
  • New Jersey’s Cross River Bank ($129 million)
  • Tennessee’s Digital Reasoning Systems ($116 million)
  • Pennsylvania-based Dynamics ($111 million)

The remaining number-one top-funded startups by state are:

  • Cortera (Florida, $81 million)
  • EmailAge (Arizona, $66 million)
  • (Iowa, $65 million)
  • Pie Insurance (DC, $60 million)
  • Clinc (Michigan, $60 million)
  • IP Commerce (Colorado, $55 million)
  • College Ave Student Loans (Delaware, $50 million)
  • LeaseAccelerator (Virginia, $42 million)
  • VisitPay (Idaho, $27 million)
  • RFPIO (Oregon, $27 million)
  • Payveris (Connecticut, $21 million)
  • Ceterus (South Carolina, $20 million)
  • Levelset (Louisiana, $17 million)
  • Venminder (Kentucky, $15 million)
  • Allovue (Maryland, $13 million)
  • Spur (Alabama, $8 million)
  • Wallit (Maine, $6.9 million)

As the median deal size in the US FinTech space has increased, 2019 has seen over 70 $100 million-plus investment mega-rounds, including:

  • SoFi ($500 million Series G)
  • Payments startup Klarna ($460 million VC round)
  • Investment platform Robinhood ($323 million Series E)
  • Home and rental insurer Lemonade ($300 million Series D)

Of course, not all of the invested ventures may succeed in the long term; many startups fail and investors may lose their shirts. But the takeaway for the UK, India, China, Germany, and other countries where FinTech innovators are part of a thriving and dynamic sector, is that US investors are not only throwing big money at entrepreneurs, but also creating a supportive environment for them right across the country.

Granted, the smaller, less-populous UK could be seen as equivalent to a single US state, California, which in fact has a larger economy. Within that smaller space, activity has coalesced around the capital. Nevertheless, the UK’s London-centric view of FinTech could be seen as conservative – even parochial – and over-reliant on the City remaining a world financial centre.

As the UK appears to be gearing up for a divisive Brexit in 2020, evidence from Bloomberg that over $1 trillion in banking assets have fled the country for Germany and Ireland since the referendum ought to be ringing alarm bells for the UK’s many ambitious innovators.

One thing is clear: the UK must find a way to ensure that entrepreneurship extends far beyond the capital and is allowed to thrive, if the country stands any chance of remaining competitive in this and other fields. Otherwise UK FinTech startups may turn out to be little more than barnacles on a slowly sinking ship.

Those players will doubtless be eyeing opportunities in the US – and in mainland Europe, where for the past 47 years it has been much easier to do business.

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