UK’s blockchain sector sees fall in funding

| Beauhurst

The UK’s blockchain sector is arguably the most esoteric corner of the country’s startup ecosystem. The term “distributed ledger” is used in most answers to what blockchain actually means, though this is an equally opaque term. To put it simply, this new technology is an online record (i.e. ledger) of transactions that have taken place between two or more parties, which exists at various different (i.e. distributed) locations in the cloud (i.e. online world). This online record cannot be edited or deleted without every party agreeing to do so; as such, it acts as a secure and trusted record of the transaction. 

Once you understand that blockchain is effectively another word for an online record, some of the mystery falls away. And now, funding for the UK’s Blockchain sector is starting to fall away too.  Whilst the number of announced investment deals completed in H1 2019 (15) is on track to match the total number invested in 2018 (31), the amount invested has some catching up to do, with just £32.3m invested so far, compared to £99m in the whole of 2018. This drop is even more pronounced when you consider that funding for the UK’s broader fast-growth ecosystem is on course for a record-breaking year. 

investment-into-UK-blockchain-companies-

Whilst we can’t rule out several large funding rounds happening later on in 2019, it may be that investor interest in this sector has cooled off. One possible reason for this is the association with cryptocurrencies. Although often confused for the same thing, blockchain is actually the technology through which cryptocurrencies are traded. 

But the association may still be impactful. These instruments crashed in 2018, losing investors large amounts of money. They were subsequently labelled the tech world’s latest tulip mania

Some might think blockchain and cryptocurrencies are overhyped, but Facebook’s recent launch of their own crypto suggests it would be premature to declare their impacts over. Indeed, several promising blockchain startups have completed funding rounds in 2019.

UK’s blockchain sector: top funding rounds of 2019 so far

uk's blockchain sector

Nivaura | $20m (£15.1m)

 

Nivaura’s funding round in February makes them one of the UK’s best funded blockchain startups. This company has developed a software platform designed to help automate the issuance of financial instruments such as bonds, equities and derivatives, on stock exchanges like the London Stock Exchange. A public blockchain register is used to record the registration and settlement (exchange) of the instrument. This means no humans have to be involved in this part of the process, which can then be automated. 

Interestingly, two magic circle law firms, Linklates and Allen & Overy also participated in the round. The automation of the financial instrument issuance process would presumably cause significant disruption for financial lawyers. If these law firms see their sectors disrupted by Nivaura, they clearly want to have a share in that disruption.

uk's blockchain sector

Acre | £5m

 

AVIVA led this seed-stage funding round in part-fintech, part-proptech startup Acre. Acre is attempting to use technology to make life easier for financial advisors who facilitate mortgage lending. Blockchain will form an important part of their tech platform, by storing all the interactions between brokers and customers in one secure online record. 

Acre is a product of Founders Factory, one of the UK’s leading startup accelerators, which helps young businesses with innovative ideas partner with corporates who have the financial clout to bring these ideas to market. Aviva is one of their leading corporate partners. 

uk's blockchain sector

Atlas City | $4m (£3.15m)

This unannounced funding round took place in June, giving the startup a pre-money valuation of £7m. Atlas City has developed a next generation blockchain network known as the Catalyst Network. Essentially, this network allows users to build their own blockchain applications at little cost, allowing them to harness the technology for their own transactions with clients. 

uk's blockchain sector

2030 | £3.15m

Similar to Nivaura, 20|30 is attempting to disrupt the world of capital markets. Whereas Nivaura is looking to automate the issuance of all financial instruments, 20|30 is looking to “tokenize” the issuance of equity instruments (i.e. the shares that are issued by companies in return for cash). Their April funding round was a test for doing exactly this – the company tokenized and then issued their own shares through the LSE’s pan-European Turquoise trading platform, raising £3m. 

Note: tokenization, a term used frequently in discussions of blockchain’s potential uses, is another opaque term. For a better understanding of what it actually means, this guide is very useful. This page explains tokenization in the context of equity (i.e. company shares that are sold via the blockchain). 

This test issuance by 20|30 was carried out in partnership with the above mentioned Nivaura, suggesting the blockchain-finance ecosystem is enjoying a collaborative environment. 20|30 and Nivaura’s activities are taking place in the 4th cohort of the Financial Conduct Authority’s “regulatory sandbox”, described by Allen & Ovary as a space “which allows businesses to test innovative products, services, business models and delivery mechanisms in the real market, with real consumers.

Interestingly, of the 29 companies to enter the FCA sandbox’s 4th cohort, 11 offer some sort of blockchain and distributed ledger technology (DLT) related service, suggesting this regulatory body sees a huge amount of potential in blockchain. 

uk's blockchain sector

DAG Global| £2.21m

This very young business was only incorporated in January of this year. Raising £2.21m is a sizeable first venture funding round, and considering its age probably broke some records. This company will use this funding to develop a blockchain-enabled merchant banking platform. 

Sector/buzzword Breakdown

Four out of the five companies with the largest raises in 2019 operate in the fintech sector. Blockchain’s usefulness (as a secure online record of transactions) would presumably lie in this sector. Currently 165 startups offering some sort of blockchain related product or service have fulfilled one of Beauhurst’s fast-growth business sectors. We analysed the sectors/buzzwords they operated in to highlight which sectors are seeing the most blockchain-related activity:

Buzzwords

fintech
64
crypto-currencies
41
artificial intelligence
22
digital security
18
internet of things
8

Sectors

business banking services
52
consumer banking services
52
security services
26
analytics and insights
19
payment processing
16

Note: these percentages don’t add up to 100 because startups frequently operate across several buzzwords or sectors. For example, startups like Molo Finance offer financial services to those looking to apply for a property mortgage via a technology platform, meaning they operate across the fintech and proptech sectors.

Finance dominates on all accounts: over 30% of the UK’s blockchain startups offer financial services to businesses (e.g. Nivaura and 20|30), while close to a quarter offer financial services to consumers (e.g. Blockchain). Nearly 40% operate in the fintech sphere. 

Digital security is also a leading buzzword attached to blockchain, with over 10% providing this sort of service. A significant number (13%) of blockchain startups are using artificial intelligence technology (e.g. blockclaim.ai). 

In terms of service delivery, a quarter provide their services via a software-as-a-service business model, whilst a similar number offer their services via an internet platform. 10% provide services through mobile app software. 

uk's blockchain sector

Considering that the first year British blockchain startups raised more than £1m in total venture funding was 2014, this technology remains in its infancy, especially when compared with more established fast-growth tech sectors such as fintech, proptech, or food delivery tech. Whilst funding for the sector has slowed this year, there’s no guarantee this isn’t just a minor blip for the UK’s blockchain sector.

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