At the recent FCA Annual General Meeting, Randell highlighted the developments in fintech, stating in particular that, ‘technology is integral to financial advice’.
Of course, the FCA is not expected to be on the cutting edge of digital developments, but it does recognise the power of this fast-growing sector; its own Project Innovate, Advice Unit and sandbox – a technology development space – has seen 89 firms engage. The sandbox is helping new products to be tested effectively and to ensure that the right safeguards are built into new products and services.
Nevertheless, there is also caution, with Randell acknowledging that, “innovation in areas like big data and machine learning are a test of regulators’ abilities to adapt.” And it’s not just large, unwieldy government bodies that find it difficult, as new technologies, “expose more people to problems like online fraud and misuse of data,” he said. “And we recognise that they can also leave some customers behind – particularly the most vulnerable. So how we manage this double-edged sword is extremely important.”
Interestingly, this is where even more fintech – technology that is applied in financial services or used to help companies manage the financial aspects of their business and processes – could be the answer. And it demonstrates that the opportunities being generated by technological developments are multi-faceted. Not only do they look to solve old problems, but they can also create new ones, that savvy entrepreneurs and investors have already spotted and focused on.
Young companies like Red Sift have sprung up with the goal of providing solutions to the cyber security challenges that have followed ongoing progression in data sharing capabilities. But these firms need support and this is where Oxford Capital’s ventures team can get involved.
The team looks for exciting UK start-ups in tech or tech-enabled sectors, giving investors the prospect of healthy EIS-qualifying returns from a diverse mix of companies with potential for rapid and high growth. In Red Sift’s case, Oxford Capital’s Growth EIS has provided human and financial capital. This backing fed the drive to develop Red Sift’s own commercial application in order to credentialise their software development platform. The product they developed, OnDMarc, a cyber security application, achieved first revenue in under 4-months and has attracted business from the Department of Justice and a raft of law firms.
In March 2016, Oxford Capital Growth EIS made its first investment of £500,000 into Red Sift as part of a £1.2 million funding round led by White Star Capital. Following impressive progress, Oxford Capital invested a further £1.25 million as part of a £2.6 million round led by White Star Capital.
The interesting thing for investors in early stage companies like this is that:
- An EIS investment can have significant tax advantages for your income and capital gains tax liabilities*
- The company’s success and the returns for its investors are generally disconnected from the mainstream investments in your portfolio, therefore potentially offering an alternative source of diversified returns.
Find out how you can invest in companies like Red Sift.
*Tax treatment depends on the individual circumstances of each client and may be subject to change in future.