Valuations can go up and down. At the moment, against the backdrop of rising rates, there are reports of lowering valuations in the tech sector globally. This can present an opportunity for large corporates, scale-ups and start-ups alike. We take a closer look at corporate venture investing in UK tech and the opportunities it provides for bringing corporate investment into the UK’s highly innovative fintech sector. 
 
Bristol-based fintech scale-up Moneyhub started as a small team with a big dream: to improve the financial wellness of people, communities and businesses. They are driving a shift towards open banking and open data, and finding ways that it can improve people’s lives. They have attracted millions of pounds in investment since CEO Samantha Seaton took the helm of the company in 2018.  
 
In 2022, they received their latest round: a £50 million injection from a group of three of the UK’s biggest corporates – Lloyds Banking Group, L&G and Phoenix Group. “Having three of the most progressive, customer-centric businesses in the UK invest in us,” Seaton says, “I’m a bit starstruck, honestly”.  

Moneyhub’s trio of corporate investors aren’t alone in looking to invest this way. PWC’s analysis shows that CVC backed funding amounted to a whopping $73.1 billion globally in 2020, and accounted for nearly a quarter of all VC deals. 

This is what is known as corporate venture capital (CVC). Corporate venture funds, like those of Lloyds, L&G and Phoenix, are invested in external startups, and scale-ups like Moneyhub. Innovative firms in growth stages receive the money and guidance they need from bigger companies; and established, forward thinking investor firms reap the rewards in the form of boosted profits and new capabilities. Importantly, CVC is distinct from traditional venture capital (VC) in that a large company is making the investment instead of a limited partner. Typically, these large companies will have a specific venture arm that is managed by specialists.  
 
Moneyhub’s trio of corporate investors aren’t alone in looking to invest this way. PWC’s analysis shows that CVC backed funding amounted to a whopping $73.1 billion globally in 2020, and accounted for nearly a quarter of all VC deals. Their research shows that Europe is a hotbed of CVC activity, and the UK is leading the way with a 27% share of European CVC-backed deals in 2020. 

And this is just the beginning. “The golden age of corporate venture capital,” PWC’s authors proclaim, “is yet to come”. We are likely to see CVC pioneering a new way of investing that others will soon latch onto. Indeed, where CVC arms go, traditional VC or institutional investors tend to follow.
 
Some of the world’s biggest financial institutions are already making CVC a core part of what they do. As well as investing in Moneyhub, Lloyds’ venture arm has already invested in a number of companies since the team was formed in early 2022. And CVC reaches beyond the world of financial services: GV, formerly Google Ventures, is amongst the most prolific corporate venture funds in the world, and has backed more than 500 tech-based businesses. Channel 4 has a venture arm, as does oil company BP.  
 
And it’s no wonder. The benefits of CVC are evident in all directions. For startups, these are obvious: they receive the funding they need to get off the ground, plus priceless support and guidance from experts at some of the world’s leading companies. Seaton explains that the CVC route has done a lot more than fund Moneyhub’s growth. “You've always got to assess at the time who can really help you not just with the money, but also beyond the money,” she says. CVC has been “a fantastic way to get our platform in the hands of lots of people. It’s so exciting for us to think that by partnering with Lloyds, L&G and Phoenix, we can genuinely step change people's lives. They also really understand the market, and the regulatory environment. We’re working with partners who absolutely get it.” 

For startups, the benefits of CVC are obvious: they receive the funding they need to get off the ground, plus priceless support and guidance from experts at some of the world’s leading companies. 

The benefits for investors are just as significant.

The benefits for investors are just as significant. Opportunities abound for large corporates, who have been priced out of tech investment markets in recent years due to the fact that investments at high valuations would have impacted earnings. Benefits include a return on investment in the form of profits, of course – but also strategic wins like the opportunity for technology exchange, improving their internal digital offering, the chance to scale further through a new customer base, access to different expertise and efficiencies, and improved brand reputation.  
 
Lloyds Fintech Investment Director, Kirsty Rutter, explains the thinking behind the company’s investment in Moneyhub. “The ability for a fintech to move fast is something that we want to be closer to and learn from,” she says. “The decision for us to invest in Moneyhub was an easy one, because it aligned to our strategy. Open finance and open data is going to grow in ways that we don't yet understand, and the Moneyhub team are experts in this area.” 
 
It’s an exciting time to be investing in the UK’s businesses, Rutter adds. “We’re really lucky in the UK. About 10% of the world’s fintechs are here, around 2,500 companies. We’re the third largest hub of fintech globally, and that’s a gift.”  
 
Seaton agrees. “Britain is an incredibly innovative country,” she says. “The UK is leading the world in terms of Open Banking and Open Finance – there is no one even close to the UK. Others around the world now are following… they will be adopting the same regulatory framework and market infrastructure that we have taken off with.” 

It’s an exciting time to be investing in the UK’s businesses. We’re really lucky in the UK. About 10% of the world’s fintechs are here, around 2,500 companies. We’re the third largest hub of fintech globally, and that’s a gift.

Kirsty Rutter, Lloyds Fintech Investment Director

By accelerating the work of the UK’s startups, CVC has the power to help cement the UK’s position on the world’s economic stage. Research from European venture capital firm Lakestar shows that the UK’s future growth will rely on new and innovative approaches rather than adopting policies of the past . Scaling up 10,000 new growth businesses by 2040 would create £5-7 trillion of value and triple GDP growth to 2-3%. CVC can play a crucial role here, confirming the UK’s role as a home for innovation and unlocking the finance needed to support the wider economy. 
 
These types of investments need not be as risky as they might be perceived to be. Some venture arms have seen success rates as high as 66%. While this depends on many factors, including careful decision making and well-defined expertise, there is clearly potential for reliable returns that far exceed those of traditional investment models favoured by pension funds. CVC represents an underexplored opportunity to bring real benefits not only to the startup economy, but to the UK’s growing proportion of pension customers. 
 
As Seaton says, “anyone that understands asset allocation, understands that the riskiest portfolio is to have it unbalanced – to not have exposure to all types of asset allocation in different forms. It's the old adage, don't put all your eggs in one basket. Putting 10% of your portfolio into fintech startups will actually derisk the portfolio.” 
 
And the time has never been better to take advantage of CVC opportunities. Recent extensions to the UK’s Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) will mean that more investors can take advantage of tax relief beyond 2025, and the proposed Solvency II changes will mean more freedoms for how pension funds are invested. 

CVC can play a crucial role, confirming the UK’s role as a home for innovation and unlocking the finance needed to support the wider economy.  

Rutter plans to continue taking advantage of the fast-paced innovation that defines the UK’s startup space. “We're blessed with the capability of investing in companies that become an extension of what [Lloyds is] and what [Lloyds] wants to be. We’re creating the ties that mean we can do things differently. And the ecosystem that comes from that, I think has phenomenal potential.” 
 
Lloyds’ CVC investments can benefit the company itself as well as the wider world, she adds. “How are we going to use tech in different ways that we hadn't thought about before? It can start to solve really interesting problems. I think it could get really exciting.”