Outward VC, a London-based VC firm focusing on fintech, has received backing from the British Business Bank (BBB) and completed a first close of £51m for its second fund.
Founded in 2019, the firm has largely concentrated on investing in fintechs based in the UK, such as London-based payments wallet Curve, open banking startup Bud and alternative investment platform Vauban, which exited to US competitor Carta in 2022.
Investors in Outward’s latest fund include the BBB, which allocated £30m from its enterprise capital funds programme, and a range of family offices, financial institutions and high-net-worth individuals. A “substantial portion” of those LPs invested in Outward’s first fund, says cofounder Kevin Chong.
A different time
But raising for a fintech fund is a harder task in 2024 than it was in 2019, adds Chong.
“We’ve come from a period where we had zero interest rates and money was free-flowing,” he says. “By the time we’ve got to our second fundraising, interest rates have gone from nothing to 5% — that definitely made it harder.”
Chong says that while there’s still interest among LPs to make fintech investments, investors in VC funds are now more cautious. Following the venture funding boom between 2020-2021, many LPs were expecting a smattering of liquidity events in the following years, such as IPOs, that never occurred.
Outward’s second fund also comes at a time when fintech — long the star of Europe’s startup sector — is playing second fiddle to climate tech. In the first six months of this year, fintech startups landed €8.8bn in funding across equity and debt while €21.3bn went to climate tech startups in Europe.
Chong says that its focus on fintechs with crossover appeal has helped it procure funding in the tougher market for fintech VCs.
“While we call ourselves a fintech fund, it’s fintech and connected sectors,” he says, noting Outward’s seed investment in employee healthcare benefits company Peppy at seed stage in 2020.
“Just look at the 21 companies in our portfolio,” he continues. “It doesn’t look like the fintech portfolio you’ll find with other fintech funds out there. If you look at Augmentum or Illuminate or 13 Books, their portfolio doesn’t look like ours.”
The reign of B2B continues
Last week, Outward made its first investment from the new fund, leading a £1.7m funding round for Capsa AI, a startup creating an AI-enabled operating system to handle due diligence for private equity funds. (The firm generally invests between £2m and £5m.)
The investment is a further example that more funding is flowing to B2B fintechs than those catering to consumers. In H1 2024, $4bn went to business-facing fintechs while $3bn went to consumer fintechs, according to Dealroom data.
Chong expects the focus on B2B to continue for the foreseeable future in the wider fintech VC market.
“Increasingly, I think we’re moving into a different generation now with fintech where it’s about the more profitable areas of fintech — asset management and wealth management for instance,” he says. “This hasn’t really been tackled very much by fintech.”
Chong says Outward is targeting £100m at second close, which it’s aiming to reach within six months. The BBB is prepared to invest an extra £20m as long as that’s matched by the amount allocated by other private investors, he notes.
“What that would mean is that the portfolio will be larger,” he says. “As it stands we will make at least 20 investments with the fund size we’re at right now. If it’s larger, we’ll make more investments but our thesis won’t change.”
Read the orginal article: https://sifted.eu/articles/fintech-fund-outward-news/
