FinTech

The BNA has a program called LISPA, which is an innovation laboratory for the payment system.

The goal is to accelerate the development of fintechs and innovative projects that promote access to financial services. LISPA is the only program that we consider an incentive to fintech businesses.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Equitise and Pozible. Significant changes have recently been made in the Australian regulatory landscape to make crowdfunding more accessible. (For further information, please see FinTech products and uses – particular rules.)

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Australia market which offer support, facilities and funding for startups, often in return for an equity stake.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early-stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions. Australian VC funds include Blackbird Ventures, Carthona Capital, Our Innovation Fund and Squarepeg Capital.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund, examples of which includes Reinventure, NAB Ventures and Telstra Ventures. The benefit of having a CVC as an investor for a FinTech start-up is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element (i.e. a warrant) allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through VC. At the time of writing, venture debt is increasingly a source of funding in the Australian market with about 5 regular providers of venture debt locally. However, the venture debt industry is still nascent as compared to the United States.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to an SPV. The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

One recent example of warehouse financing involves Zip Money Limited, a listed Australian non-bank consumer financier, which involved a two-year asset-backed securitization warehouse in relation to its consumer receivables loan book.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Australia has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) is a popular funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the Australian Securities Exchange. 

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Initial Coin Offerings

An Initial Coin Offering (ICO) is an alternative to a share market IPO, crowdfunding or venture capital funding round for a startup with a blockchain-based platform or project. A startup looking to undertake an ICO will first produce a 'white paper' and then market itself to potential investors, much in the same way as a company undertaking an IPO.

ICOs are not common in Australia however there is a growing demand for this method of fundraising in Australia, particularly for startups with blockchain-based platforms that are looking to raise money fast.

In late 2017, Perth-based blockchain energy start-up Power Ledger become the first Australian company to undertake an ICO – raising AUD17 million in three days.

It is likely that, in most circumstances, Australian ICOs will involve the issue of securities and therefore fall under existing regulations for the offer of securities. This means ICOs will be subject to the same reporting obligations and regulations as an IPO.

Incentives and reliefs

Incentives for early stage innovation start ups

Incentives are available for startups (known as 'Early Stage Innovation Companies') which:

• are less than three years' old;
• have income less than AUD200,000 and expenses less than AUD1 million; and
• have businesses that are eligible (meaning that they have scalability, potential for growth and are undertaking research and development (R&D)).

Investments (less than 30% of the equity in an Early Stage Innovation Company) would generally qualify for a 20% non-refundable tax offset (capped at AUD200,000 per investor) and a ten-year exemption to capital gains tax.

Eligible venture capital limited partnerships

Investment funds investing into FinTech growth companies may be structured as venture capital limited partnerships (VCLPs) or early stage venture capital limited partnerships (ESVCLPs) to receive favorable tax treatment for the funds limited partners and with regard to carried interest payable to the funds general partner. For VCLPs, benefits include tax exemptions for foreign investors (eligible foreign limited partners) from capital gains tax on their share of any profits made by the partnership. For ESVCLPs, an income tax exemption applies to both resident and non-resident investors, plus a 10% non-refundable tax offset is available for new capital invested.

FinTech incentives

The R&D Tax Incentive program is available for entities incurring eligible expenditure on R&D activities, including certain software R&D activities commonly conducted by FinTech/tech-growth companies. Claimants under the R&D Tax Incentive may be eligible for:

• small businesses (< AUD20 million aggregated turnover) – 43.5% refundable tax offset of the first AUD100 million of eligible R&D expenditure; and
• other businesses – a 38.5% non-refundable tax offset.

Generally, eligible R&D activities include experimental activities whose outcome cannot be known in advance and are undertaken for the purposes of acquiring new knowledge (known as 'core R&D activities'), and supporting activities directly related to core R&D activities (known as 'supporting R&D activities').

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals, (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform (the so-called 'alternative financing platforms'). The FSMA website currently shows 6 registered alternative financing platforms.

There are three main types of crowdfunding: equity-based, debt-based and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Debt-based crowdfunding (also known as crowdlending): funders lend money to a company and look for interest payments as well as the full repayment of the principal.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Belgian market, which offer support and facilities for startups. Several competitions are being organized by financial market players in order to attract ideas, which may in turn be rewarded with initial financing.

Banks are equally keen to keep an eye on promising projects in the Belgian market. ING Belgium in 2017 offered a full FinTech incubator experience to startups in search of professional guidance and early stage advisory. The ING FinTech Village was a four-month scheme to which startups or scale-ups could apply in order to develop FinTech applications, while being provided with appropriate accommodation, support and advice offered by board level professionals from across the financial sector.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund, a Belgian example of which is the FinTech platform B-Hive. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor. In Belgium, FPIM (Federal Holding and Investment Company), a government investment body, made considerable contributions to B-Hive's fundraising, thus stressing the state's intentions to stimulate the sector's early development. More government capital funding initiatives are expected to be launched in the near future.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), secured against a company's assets and including an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for (typically larger scale) FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Another internationally available alternative form of funding is by way of peer-to-peer (P2P) lending platforms, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead, interest is paid on the money borrowed. However, as mentioned above, this type of lending is currently not available in the Belgian market, given the hostile regulatory environment.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis, depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Belgium has both debt and equity capital markets which are accessible to businesses (usually of a certain size). The Belgian capital market, however, is not readily available to companies in startup or scale-up stages. In recent years, IPOs and especially securitizations have been scarce. There is a tendency for successful Belgian startups to move abroad in their early stages.

Convertible bonds/loan notes

Another funding tool for fast-growing FinTech businesses, is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

Under Belgian law, a tax shelter is available for investors in startup companies including FinTech initiatives. Depending on the size of the company receiving funding, the Belgian taxpayer-investor is entitled to a 30% or 45% tax reduction. Companies are therefore being divided into micro-enterprises and SMEs, with the number of employees being one of the decisive factors (less than 10 for the former and less than 50 for the latter).

Private equity funds are more open to companies envisaging a steep growth trajectory. Both private and public debt is available in every region of Belgium. Often government subsidies can be obtained for innovative initiatives with a solid business prospect.

In early 2017 a new FinTech focused investment fund was set up to provide funding to FinTech initiatives in the Belgian market. Such funds often benefit from government contributions. More similar initiatives have been announced for the near future.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Accelerators

There are various incubators or accelerators in the Brazilian market which offer support, facilities and funding for startups, often in return for an equity stake. For example, Bradesco, one of the largest private banks in Brazil, has an innovation program that selects startups producing solutions adjustable to the financial market (known as inovaBra) and maintains a corporate venture (through an investment fund) to invest in such companies. Other banks have similar initiatives, such as the Cubo coworking by Itaú and Redpoint eVentures and the competition ‘Fintech Venture Day’ sponsored by Santander InnoVentures (the bank’s FinTech investment fund), or the recently launched “Labbs” by Banco do Brasil (which is a platform developed to connect the bank to start-ups).

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV) or a fund (FIDC). The loan is secured on the assets acquired by the SPV or the FIDC from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Brazil has both debt and equity capital markets which are accessible to businesses (usually of a certain size and as long as it is incorporated as a corporation (sociedade anônima), as opposed to a limited liability company (limitada)).

Furthermore, a FinTech company may decide to offer either a full public offer of securities or a public offer with limited marketing efforts.

On 16 January 2009, CVM enacted Instruction No. 476 which establishes that a public offering of certain securities will no longer be subject to registration with CVM or have to comply with CVM provisions relating to public offerings of securities, if they comply with the following requirements (limiting, in general, their marketing efforts) namely:

• involve one of the securities mentioned in Instruction No. 476, including, but not limited to commercial notes, banking credit certificates that are not the responsibility of a financial institution, debentures not convertible into shares, real estate or agribusiness rights certificates issued by securitization companies registered with the CVM as publicly-held companies, quotas of close-ended investment funds and financial notes (letras financeiras);
• be only targeted to qualified investors (as defined in the applicable regulation of CVM);
• be mediated by members of the securities distribution system;
• be marketed to a maximum of 75 qualified investors and subscribed or acquired by no more than 50 qualified investors; and
• not involve marketing activity through stores, offices and establishments open to the public or public communication services.

Public offers to any other type/number of investors are not covered by that exemption and have to comply with the applicable requirements of CVM, including the preparation of a full prospectus on the issuer and the transaction.

Incentives and reliefs

Recently, Brazilian tax authorities have regulated angel investors through the application of tax regimes in respect of the capitalization of companies. Under Normative Ruling RFB No. 1,719/2017, the seed investor is entitled to earn income from capital it has invested which is subject to withholding income tax at rates varying from 15% to 22.5%, depending on the length of the investment. This type of angel investment is treated like a financial market investment and not as an equity contribution, as would be the norm and which otherwise would make it subject to dividend payments which are not subject to withholding tax.

With respect to tax incentives for FinTechs, there are no specific tax benefits for this sector but some general tax incentives may apply, such as:

• FinTech businesses with annual (12-month period) gross revenue of up to BRL$4.8 million (four million and eight hundred thousand Brazilian Reais) may be subject to taxes over its gross revenues under a simplified tax regime called 'Simples Nacional', provided that certain thresholds set in the legislation are complied with. Simples Nacional is an optional taxation regime designed to simplify the collection of taxes of micro or small businesses which allows the collection of municipal, state and federal taxes at simplified standard rates based on the monthly gross revenue of the company.
• Certain Brazilian municipalities grant reduced service tax rates from 5% to 2% to attract new businesses. FinTechs which are typical service providers (and not financial institutions) may take advantage of this incentive by setting up operations in those municipalities.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake or some other form of interest such as a convertible note. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital (VC) providers, which permits the founder to pursue the growth of the business as the founder and its advisors envision.

Crowdfunding

The crowdfunding sector may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform. Crowdfunding activities in Canada are typically subject to applicable securities laws (including in respect of the platform as well as the equity security being offered).

There are two three main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares or other securities being issued in exchange for investment in the company.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access; however, crowdfunding has not had significant success and adoption as a means to finance startup businesses in Canada, with most FinTech startups pursuing the other methods of financing referred to below.

Accelerators

There are various early-stage business incubators and accelerators in the Canadian market which offer support, facilities and funding for startups, often in return for an equity stake.

Venture capital and debt

VC funding is a type of equity investment usually targeted at early stage FinTech companies. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a funding division of a corporation. The benefit of having a CVC as an investor for a FinTech startup is that, among other things, the investor is able to share its sector knowledge and expertise with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a fixed term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company at a discounted price upon certain events or otherwise. There are also other financing alternatives that may be put in place with venture investors or lenders such as a simple agreement for future equity. The merits of these structures should be discussed with your legal and financial advisors.

Senior bank debt and capital markets funding

Senior bank debt

Typically, once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Canada has both debt and equity capital markets which are accessible to businesses of varying sizes. For example, a FinTech company may elect to become a reporting issuer in one or more of the provinces and territories of Canada through an initial public offering of its securities (IPO). In Canada, an IPO involves the issuance and sale of securities of the company and a concurrent listing on a stock exchange. An IPO may be completed in different ways, including by way of a reverse take-over of an existing public company.

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances (for example, upon the completion of an IPO or the raise of a certain amount of investment).

Incentives and reliefs

The Canadian provinces and territories as well as the federal government, offer various tax credits, tax benefits and other incentives. These include the Scientific Research and Experimental Development Tax Incentive Program (SRED) or research and development (R&D) tax credit, to provide qualified Canadian companies with funds to undertake capital expenditures to reduce costs and generate marketing dollars to promote commercialization efforts. Depending on where in Canada the FinTech business is established and/or operates, certain other credits and incentives may be available, such as e-commerce credits and technology and innovation credits. In addition to various incentives and reliefs that may be available, the Federal Government also supports certain venture funds with FinTech companies as desired investments and there are government funds designed to do the same.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers. 

There are several entities that provide funding for technology in Chile, the most important ones are:

• Corporación de Fomento de la Producción de Chile (Production Development Corporation or CORFO) acts through its startup-oriented programs, such as:
  • Capital Semilla (seed money) – for innovative businesses which can reach sales for amounts above US$1 million in three years and have the ability to grow afterwards;
  • Semilla de Asignación Flexible (flexible seed money assignment); 
  • Start-Up Chile (a Chilean accelerator); and
  • Sercotec (Servicio de Cooperación Técnica).
• Comisión Nacional de Investigación Científica y Tecnológica (National Commission for Scientific and Technological Research or CONICYT) acts through their technology incentives, such as:
  • FONDEQUIP (technologic and scientific fund);
  • EXPLORA (national program for science and technology);
  • REGIONAL (regional program for scientific and technological research); and
  • FONDEF (promotion fund to scientific and technological fund).
• There are also several angel investment networks operating in Chile. The Angel Investors program is assisted by Innovachile (a CORFO agency in charge of providing Chilean enterprises access to technology).

Venture capital and debt

CORFO provides funding through its venture capital programs, such as:

• Programa de Aceleración de Emprendimientos en Sectores Estratégicos (which supports business incubators and accelerators that execute programs with technological ventures associated to strategic industries); and
• Scale Up Expansión (for innovative ventures with growth potential).

Several private funds provide financing for these kinds of undertakings.

Senior bank debt and capital markets funding

CORFO also funds the Early Stages Funds (FET), which provide credit lines to investment funds investing in technology industries. One such example is the Fondo Etapas Tempranas Tecnológicas Perfil Administradoras, which promotes the development of risk capital investment funds, focusing on Chilean enterprises in their early stages of development and present a growth potential in technology-related industries.

Standard bank arrangements can also be negotiated for this kind of funding.

Incentives and reliefs

The following are examples of laws designed to help small, early-stage companies:

• The Research and Development Law, Law No 20,241 (I+D Law) aims to contribute to improve the competitive capacity of the Chilean corporations, establishing a tax incentive for I+D investment, which allows qualifying entities to reduce first category taxes of 35% of the resources that were allocated towards research and development activities.
• Law No 20,154 reduces the additional tax rates which would normally apply to corporates using knowledge and technology from abroad.
• Law No 6,640 establishes an incentive to provide donations to CORFO. Donors can reduce their taxes, in accordance with the amounts or assets donated to the corporation. 

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdcube or Crowdfunder.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Colombian market which offer support, facilities and funding for startups, often in return for an equity stake. For example, INNpulsa Colombia, a governmental entity created in 2012, promotes and supports startups that are mainly focused in the productivity and business sector. Bancoldex, another governmental entity, finances any credit required by entities for working capital, fixed investments, and corporate capitalization.

Issues of crowdfunding implementations in Colombia

Currently Colombian regulations do not permit crowdfunding services. However, mindful of the potential benefits of crowdfunding platforms, the Financial Regulation Unity (URF) is proposing reform to the current legal framework in order to allow crowdfunding in Colombia and, at the same time, ensure investor protection and stability for the financial system. The URF proposes three main strategies for a future regulation of crowdfunding in Colombia:

• a clear definition in the law of 'financial crowdfunding';
• to regulate the activity in order for it to be performed, exclusively, by entities under the surveillance and control of the Financial Superintendence of Colombia; and
• to establish duties and conditions to be complied with by all parties that interact in the crowdfunding market.

Venture capital and debt

Venture capital and debt

Venture capital (VC) is equity capital or loan capital provided by private investors or specialized institutions. It is a type of funding used to acquire new or growing businesses, including FinTech businesses. The VC firm provides funding to the startup company in exchange for equity in the startup. VC provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

In Colombia, the VC industry is currently organized as a high-risk investment through private equity funds, under the management of general partners and involving angel and institutional investors.

Differences between venture capital and crowdfunding

The principal difference between VC and crowdfunding is equity. Investors acquire equity in the startup, crowdfunders do not. Generally, crowdfunding has a higher risk as it acts as a pre-order platform where there is a reasonable probability that the startup may fail to deliver the pre-order.

Warehouse and platform funding

Warehouse financing is a form of inventory financing in which loans are made to manufacturers and processors on the basis of goods or commodities held in trust as collateral for the loans. The goods may be held in public warehouses approved by the lender, or may be held in field warehouses located in the borrower's facilities but controlled by an independent third party. A financial institution engaged in warehouse financing will usually designate a collateral manager who issues a warehouse receipt to the borrower that certifies the quantity and quality of the stored goods or commodities.

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Some FinTech companies may see warehouse funding as a temporary form of financing to be followed by a larger capital markets transaction at a later date.

Law 1676 of 2014 provided a new legal framework on security interest over movable assets. The law introduced many changes but among the most important are:

• an increase in the kinds of assets that may be subject to a security interest;
• the creation of a new centralized system where filing and searches of security interests may be conducted; and
• new methods to enforce security interests against third parties and debtors.

This law promotes the use of warehouse and platform funding in Colombia.

Senior bank debt and capital markets funding

Senior bank debt

Senior bank debt is a debt financing obligation issued by a financial institution to a company or individual that holds legal claim to the borrowers assets ranking above all other debt obligations. The debt is considered senior to all other claims against the borrower, which means that in the event of a bankruptcy the senior bank debt is the first to be repaid before all other interested parties receive payment.

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis, depending on the creditworthiness and asset base of the business.

Capital markets funding

Capital markets are the markets where securities such as shares and bonds are issued to raise medium to long-term financing, and where securities are traded. Securities may be issued by a company issuing shares or bonds to raise money. Bonds could also be issued by other entities in need of long-term funds.

Currently, in Colombia, FinTech companies have not issued bonds to invite investors as a way of raising funding, due to the lack of regulation.

Incentives and reliefs

There are certain provisions that incentivize specific platforms for FinTech business. For example, the last amendment of the Colombian Tax Code includes an incentive for the cloud computing platforms; cloud computing platforms shall be exempt from value added tax.

In addition, taking into account that it is expected that Congress will introduce a law that regulates FinTech businesses, the Asociación Colombiana FinTech has proposed that the legal FinTech framework includes tax deductions for:

• companies’ vehicles and or structures that have, as a main objective, crowdfunding services;
• investors' funders or resource generators who interact with crowdfunding providers; and
• any financing or investment through a lending, crowdfunding or entrepreneur platform. 

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an international intermediary platform, such as Crowdcube or Crowdfunder or local Czech platforms such as Hithit, Startovac or Crowder.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Czech market which offer support, facilities and funding for startups, often in return for an equity stake. UP21, CreativeDock, Bolt or Air Ventures are the notable startup incubators active on the Czech market.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through VC.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms such as Zonky, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead interest is paid on the money borrowed.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

The Czech Republic has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) is a popular funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the Prague Stock Exchange.

FinTech companies have also started to access funding by issuing bonds to retail investors as a way of raising more competitive funding.

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by, for example, the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

The Finnish Funding Agency for Technology and Innovation (Tekes)

Tekes is the most important public funding agency for research funding in Finland. Tekes provides funding to transform research-stage ideas into viable businesses, and may combine direct unconditional funding with Tekes-guaranteed loans, conditional on the success of the resulting business.

Angel investors

Business angel financing has developed as an important source of early stage capital for startups. A business angel is an individual who provides capital for a startup and usually in exchange for convertible debt or ownership equity. Business angel funding is also provided through cooperative platforms, such as the Finnish Business Angels Network (FiBAN).

Accelerators

Accelerators, which are normally set up by business communities, governments or academic centers provide essential mentoring, capital and connections for FinTech companies. Accelerators had an important role in startup financing some years ago but their relevance has, however, since declined.

Crowdfunding

Crowdfunding is available but is not a common way of funding for a FinTech business, because the business ecosystems around FinTech are typically highly complex and not easily marketable to the public. Crowdfunding involves members of the public investing in a business by pooling their resources through an intermediary platform. The idea of crowdfunding is, that a large number of investors make relatively small investments through an online platform to a certain company, which usually is in its early stages.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Peer-to-peer platform funding

One form of funding is by way of peer-to-peer (P2P) lending platforms, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead interest is paid on the money borrowed.

Senior bank debt and capital markets funding

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis, depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

In Finland both debt and equity capital markets are accessible to businesses (usually of a certain size).

A FinTech company may raise finance by listing on First North, which is a Nordic alternative market designed for small and growing companies. The First North market is maintained by local NASDAQ OMQ stock exchange companies (in Finland NASDAQ OMX Helsinki Oy). Using a less extensive rulebook than the main market, the First North market provides companies with more room to focus on their business and development, while still taking advantage of all the positive aspects of being a listed company. The First North market runs in the Nordic stock exchange parallel to the main market, where the shares are traded in a single trading system. For investors, First North offers an opportunity to invest in companies that are in an interesting stage of their growth. Many large and established companies began their journey on First North, creating growth and gaining experience. Many of these companies went on to listing on the NASDAQ regulated main market.

As an alternative to bank or other types of financing, Nordic companies are increasingly funding themselves via corporate bonds. The benefits of corporate bonds include, for example:

• the possibility for longer maturities;
• fixed interest rates and bullet repayment (ie no amortization);
• reduced dependency of banks;
• less detailed terms compared to bank loans; and
• transparency in secondary market pricing.

The Nasdaq First North Bond Market is an alternative marketplace with an efficient admissions process. On the Nasdaq First North Bond Market, bonds can be admitted to trading without having a prospectus approved by the Finnish Financial Supervisory Authority or without a need to comply with IFRS accounting standards. Due to these reasons, issuing bonds on the Nasdaq First North Bond Market can be seen as a tempting alternative for FinTech companies as it allows them to concentrate on developing their core business.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

There are numerous options available to FinTechs with respect to funding their businesses, including the following.

Crowdfunding

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Venture capital

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies. VC provides an alternative to traditional lending in particular in scenarios where the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Bank debt

Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

An Initial Public Offering (IPO) can be a viable option for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange.

FinTech companies can also issue bonds to investors as a way of raising more competitive funding.

Startups in fintech face the constraint that there is little available by way of venture capital and debt for startups in general. Banks and investors typically prefer growth companies with a three- to five-year track record.  However, a good business case with credible promoters with a track record can attract funding. 

Established companies entering the fintech space such as the Telcos have access to capital markets and senior debt financing.

Tax breaks have recently been introduced for young entrepreneurs. The income of a person who is 35 years old or under from an information and communications technology business is exempt from tax for the first five years of the business and a concessional tax rate may be applicable for the next five years. 

The capital allowances regime is designed to enable investors recoup their investment expenditure. 

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Hungarian market which offer support, facilities and funding for startups, often in return for an equity stake.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a loan (or series of loans) secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms , which bring individual borrowers and lenders together without the involvement of traditional banks.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Raising finance by way of an Initial Public Offering (IPO) is a possible funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the Budapest Stock Exchange.

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

As of 1 January 2017, the Act LXXXI of 1996 on Corporate Tax and Dividend Tax offers a corporate tax relief for businesses who invest in the shares of qualifying startups, up to a maximum amount of HUF 20 million per year for three years, following the acquisition of the shares.

Most Irish fintech businesses are raising funding through traditional funding mechanisms such as seed investment, venture funding, debt and government-supported funding.

DLA Piper Ireland has excellent relationships with all stakeholders involved in these funding arrangements and is happy to make introductions for clients as required.

Early stage

Fintech in Ireland

A number of key organizations, incubators and other support mechanisms have emerged in Ireland to further develop the growing fintech sector.

1. Industry Organizations

Fintech industry organizations in Ireland include:

• The FinTech and Payments Association of Ireland – the main trade association representing fintech and payments businesses in Ireland.
• FinTech Ireland – an independent, nonprofit organization which regularly collaborates with other organizations internationally to run events in Ireland.
• Blockchain Ireland – a combined effort of the Irish government and Irish-based companies, led by the Industrial Development Authority Blockchain Expert Group to promote and share information on blockchain in Ireland.

1. Incubators and accelerators

• Incubators

Incubators cater to new companies specifically, nurturing the growth of a new business, as the name suggests. An incubator typically offers shared office spaces, networking and mentoring opportunities and perhaps some seed capital. Examples of such incubators include Dogpatch Labs (which operates a co-working space for scaling technology start-ups) and the Digital Hub, where hundreds of companies have progressed through its enterprise cluster and gone on to create thousands of jobs in Ireland’s digital economy.

• Accelerators

There are various accelerators in the Irish market which offer support, facilities and funding for fintech startups, often in return for an equity stake. For example, the Citi Accelerator Hub is a co-working space for fintech startups located in Citi’s offices in the IFSC in Dublin and offers participating startups access to Citi’s mentoring network for advice and support, as well as industry meet-ups and networking events. Another example is the MasterCard Labs StartPath program which provides a four-month program and office space in MasterCard’s Dublin office, which is its global technology HQ.

Seed Investment

Initial investment in fintech businesses may be provided by family and friends of the founders and other investors, in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The Irish Venture Capital Association (IVCA) reported that there was a 55% year-on-year increase in seed funding in Ireland in 2019, from EUR49 million in 2018 to EUR76 million in 2019.

Venture Capital

Venture capital is a type of equity investment provided by full-time, professional firms (venture capitalists) who invest with management in ambitious, fast-growing companies with the potential to develop into significant businesses. Venture capital firms and private equity investors continue to focus on high potential fintech businesses. According to the IVCA, fintech companies raised 9% of the total venture capital investment in Irish small and medium-sized businesses in 2019.

Venture Debt

An additional funding option is venture debt, which is offered by banks such as the European Investment Bank and offers long-term venture debt products for fast growing companies. The financing structure of venture debt includes bullet repayments and remuneration linked to equity risk, and compliments existing venture capital financing. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Senior Bank Debt

Once a fintech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. Bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Convertible Loan Notes

A popular funding tool for fast-growing fintech businesses is to issue convertible loan notes, which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Online financing

In addition to traditional lending from financial institutions for small and medium-sized businesses, there are also online financing platforms available for fintech businesses in Ireland.

Crowdfunding

Crowdfunding is the financing of a new project by raising many small amounts of money from a large number of people and often involves the financing being provided in exchange for an equity investment in the relevant company. As discussed above, Ireland does not currently have a bespoke regulatory regime for crowdfunding. The Irish government’s Ireland for Finance 2025 Strategy Paper in March 2019 included a proposal to regulate crowdfunding in Ireland and enact a domestic regulatory regime, in parallel with European regulation, to ensure sufficient consumer protection for unsophisticated investors and to facilitate the growth of crowdfunding as an alternative source of finance for Irish small and medium-sized enterprises.

Peer-to-Peer (P2P) Lending

Another alternative form of funding is by way of P2P lending platforms such as Flendr and Linked Finance. P2P lending involves a person or party lending money to a business rather than going through a traditional bank. Typically, P2P lenders earn interest in addition to capital repayments in exchange for their funding as opposed to any equity investment in the relevant company. Ireland does not currently have a bespoke regulatory regime for P2P lending.

Government-supported funding

The Irish government, through its various arms, offers funding arrangements and incentives to fintech businesses doing business in Ireland. We have outlined some of these arrangements and incentives below.

Enterprise Ireland (EI)

EI is a state agency responsible for the development and growth of Irish companies in world markets. EI offers a number of supports to fintech businesses including:

(a) Competitive Start Fund – this fund is open to early stage companies in fintech and offers EUR50,000 equity investment designed to accelerate the development of high potential startup companies by supporting them to achieve commercial and technical milestones such as evaluating international market opportunities or building a prototype; and

• Innovative High Potential Start-up Fund (HPSU) – this fund allows EI to offer equity investment to HPSU clients, on a co-funded basis to support the implementation of a company’s business plans.

Industrial Development Authority (IDA)

The IDA is responsible for attracting multinational investment into Ireland, its primary goal being to create new employment. The IDA provides logistical support and granting assistance to its client companies. Grants are negotiated on a project-by-project basis (and are usually subject to job creation in Ireland) and are subject to limits and EU state aid rates. IDA fintech clients include Stripe, First Data, Rubicoin and Future Finance.

• Ireland Strategic Investment Fund (ISIF)

The ISIF, managed and controlled by the National Treasury Management Agency, is an EUR8 billion sovereign development fund with a statutory mandate to invest on a commercial basis in a manner designed to support economic activity and employment in Ireland. The ISIF offers companies “permanent” capital that can work to a longer-term horizon than most participants in the market. The ISIF has invested in fintech companies such as Silicon Valley Bank and Polaris Partners.

Other government-led initiatives worth mentioning include:

• Disruptive Technologies Innovation Fund – this fund provides EUR500 million for projects which include the use of disruptive technologies that will significantly alter the way we work and live, involve collaboration, innovation and/or be disruptive in its impact on one of the sectors in the competitively-funded Research Priority Areas designated by the Irish government (one of which includes Business Services and Processes).
• Startup refunds for Entrepreneurs – offers individuals the ability to obtain up to a 41% refund for capital they invest in their own startup business.
• Employment and Investment Incentive (EII) – offers individuals the ability to claim up to 40% tax relief on investments they make in other companies.

Capital Markets Funding

Raising finance by way of an Initial Public Offering (IPO) is a popular funding arrangement for fintech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as EuroNext Dublin.

Tax Incentives and Reliefs

Ireland has for many years used tax incentives as a tool to attract foreign direct investment. In addition to the 12.5% rate of corporation tax on trading profits, the other key tax benefits available to fintech businesses investing in Ireland include:

• tax relief on the acquisition costs of IP and other intangibles;
• a generous R&D tax credit system giving an effective tax deduction of 37.5% for qualifying expenditure;
• stamp duty exemption available on the transfer of a wide range of IP;
• no Capital Gains Tax on gains from the sale of certain shares and reduced tax on foreign dividends;
• key employee reward mechanism;
• Ireland’s Extensive Double Taxation Treaty Network;
• the first OECD compliant patent box regime (the Knowledge Development Box) with 6.25% effective tax rate on profits arising from certain types of IP; and
• extensive domestic exemptions from withholding tax on interest and dividend payments.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform.

Below are the most common models of crowdfunding:

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.
• Donation crowdfunding involves NGO and non-profit associations in relation to the funding of humanitarian projects and nonprofit projects.
• Hybrid crowdfunding is a combination of the above.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are a growing number of incubators or accelerators in the Italian market which offer support, facilities and funding for startups, often in return for an equity stake, such as iSTARTER.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions. Research suggest that there are more than 15 asset managers active in venture capital in Italy with more than 60 funds under management.

Warehouse and platform funding

Warehouse financing and platform financing may be suitable for FinTech companies depending on the type of business and assets.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

In Italy both debt and equity capital markets are accessible to FinTech businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) is a possible funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the Milan Stock Exchange. The Milan Stock Exchange's Alternative Investment Market (AIM) in particular caters for small, growth-orientated companies.

Issuance of bonds is an alternative funding structure for FinTech businesses.

Convertible bonds/loan notes

Convertible bonds or loan notes may also represent a funding tool for FinTech businesses, being essentially a hybrid between debt and equity. Convertible instruments begin as a bond accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

SECURITISATION TRANSACTIONS

An additional funding tool for the FinTech companies may be the realization of a securitisation transaction. In particular, it is possible to securitize the loans granted by FinTech platforms and have access to the funds of the investors on the debt capital markets.

Incentives and reliefs

Innovative startups

Italian tax law establishes a set of tax incentives to Italian companies qualifying as so-called 'innovative' startups. The favourable regime is available to Italian and European Union/European Employment Strategy companies having a branch in Italy, provided they meet a set of requirements. Among others these are as follows:

• The company’s core business should consist of the development, production and commercialization of innovative goods or services of high technological value.
• The company should have been set up for no longer than 60 months.
• The company’s turnover should not exceed €5 million.
• The company shall not distribute profits.

Companies and individuals investing directly or indirectly in qualified innovative startups may benefit from significant tax reliefs up to 30% of the invested amount, subject to a minimum holding period of three years.

Allowance for Corporate Equity

Italian companies and Italian permanent establishments (PEs) of foreign enterprises may benefit from Italian notional interest deduction (NID) (so-called Allowance for Corporate Equity or ACE). The ACE benefit entails a notional deduction from the corporate income taxable base corresponding to the net increase in the 'new equity' injected in the entity after 2010, multiplied by a rate annually determined (1.3% for financial year 2019 and thereafter as set by the Budget Law for 2020). The qualifying equity increases may include equity contributions, retained earnings (with the exception of profits allocated to a non-disposable reserve) and the waiver of shareholder credit.

Research, development AND INNOVATION tax credit ("RDI")

From financial year 2020 , Italian companies and Italian PEs of non-resident companies carrying out qualifying RDI activities (i.e. R&D expenses and technological innovation costs, together RDI) can benefit from a tax credit computed as a percentage of each specific RDI expenditures (e.g. 12% of the costs falling in the base of R&D computation, net of external contributions, up to the amount of Euro 3 Mio per 12 months; 6% of the costs qualified as technological innovation expenses, net of external contributions, up to Euro 1.5 per 12 months; 10% of the costs qualified as technological innovation expenses for new products/processes, net of external contributions, up to Euro 1.5 per 12 months; 6% of the design costs, net of external contributions, up to Euro 1.5 per 12 months).  The tax credit can be used to offset other taxes due, in three equal instalments. Other fulfilments (e.g. formal communication to the Ministry of Economic Development) are mandatory required before the tax credit is used.

Patent box

The patent box regime is a tax bonus introduced in order to improve the development of intellectual property, granting tax benefits to resident and non-resident taxpayers carrying out R&D activities, consisting of partial tax deduction (50%) from corporate income tax for income arising from direct use or licensing of qualified intangible assets (not including commercial trademarks).

Withholding tax exemption on interest payments

Italian tax law provides for an exemption from withholding tax on interest payments on medium-long term loans granted to Italian-resident borrowers by European Union foreign institutional investors (eg banks, insurance companies) and certain approved institutional investors. In order to benefit from the exemption, foreign lenders should comply with Italian law on the exercise of lending activity (to the extent that they operate vis-à-vis the public). The withholding tax exemption would apply to the extent the borrower performs business activities, expressly including holding companies.

Early stage

Seed investment

Foreign business angels, especially French ones, provided some fintech businesses with initial investments. For instance, Julaya, an Ivory Coast-based fintech startup raised USD550,000 to fund its activities in the country.

Startups may have support from individual or entities investors, experienced angels and partnerships with local and pan-African payment startups.

Such seed investment is often used to fund the establishment and early growth of the business before larger investment is sought and available.

Crowdfunding

The crowdfunding sector is at its early stage in Ivory Coast. Crowdfunding platforms have been launched bringing together individuals, entities and charities to finance personal and charitable projects.

“Orange collecte” has created a mobile crowdfunding platform and other telecom operators are expected to follow.

Crowdfunding has also been seen as a possible alternative through which foreign aid may be sent in order to resolve issues such as corruption. However, legal and regulatory obstacles have slowed that initiative that has been considered by foreign countries such as the UK.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage fintech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund, examples of which include Santander InnoVentures and Citigroup's Citi Ventures. The benefit of having a CVC as an investor for a fintech startup is that the fund is able to share its knowledge and expertise of the fintech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Senior bank debt and capital markets funding

Once a fintech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding, which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Incentives and reliefs

The investment code is intended to help investors with their potential projects in Ivory Coast. Indeed, international investors are urged to rely on local companies in the conduct of their operations in order to benefit from certain incentives offered by the new legal system.

The objective is, of course, to open up opportunities for SMEs and to give an inclusive character to Ivorian economic growth. Thus, large foreign companies eligible for the benefits of the new Code are entitled to tax credits provided that they apply a local content policy on job creation, opening of social capital to nationals and the outsourcing.

In concrete terms, an additional tax credit of 2% is granted to foreign investors whose number of executives and supervisory staff (management bodies such as directors, production manager, operational manager, sales manager, etc.) of Ivorian nationality represents 90% of the total workforce of these two categories of employees.

The same tax credit is granted to companies subcontracting to national companies the realization of goods intended to be incorporated into a final product in Ivory Coast or abroad. It also applies to companies that open their capital to nationals.

Early stage

General

The basic funding arrangements for FinTech companies are substantially different from those used by more traditional companies. Initial funding in a FinTech startup may be provided by family and friends of the founder or other high-net-worth individuals (known as business angels) who are interested in the firm's business for seed financing, and after this initial stage, the FinTech startup would receive investments from venture capital (VC) as a series A round.

Crowdfunding

Crowdfunding is a method of funding for a new project or business to raise small amounts of capital from a large number of individuals through the internet. Firms using the crowdfunding system are subject to the Financial Instruments Exchange Act (FIEA) and must register with the competent authority. However, FIEA was amended on 23 May 2014 to relax registration requirements to promote the growth of crowdfunding businesses. There are two types of registration available under FIEA for crowdfunding businesses: Type I registration or Type II registration. Applicability of these registration types depends on the form of securities issued to investors. For example, Type I registration is required in the case of issuance of shares or share options through crowdfunding.

Venture capital and debt

Venture capital

Startups typically receive investments as equity from VC funds which are private equity investment vehicles. VC funds often invest in startups by purchasing preferred stock. Startups will enter into many complex agreements with VC funds, such as shareholder agreements and investment agreements. In addition, as described above, VC funds often demand preferred stocks which must be designed in line with the requirements of the Company Act and comply with certain processes in order to issue the preferred stocks legally.

Venture debt

It is rare for startups to raise funds such as venture debt, since such small or medium-sized firms do not have enough ability to make payments against the principal and interest on the debt. However, in some cases, startups can borrow money from banks or other companies as bridge financing until receiving investment from VC funds.

Warehouse and platform funding

Warehouse financing is available to businesses in Japan. Warehouse financing may be suitable for FinTech companies which own a portfolio of assets and are aware of any difficulty in raising money from capital markets.

Peer-to-peer (P2P) lending platforms such as maneo, which is the pioneer in this field in Japan, are also accessible to FinTech companies in Japan. However, because there are numerous restrictions on businesses conducting P2P lending services in Japan, including those arising under Money Lending Act and Financial Instruments and Exchange Act, P2P lending platforms are still not very popular in Japan.

Senior bank debt and capital markets funding

In general traditional banks take a stringent attitude towards lending money to venture-backed companies, but have become more open to lending money to FinTech startups.

Japan has both debt and equity capital markets which are accessible to businesses.

An Initial Public Offering (IPO) is one of the funding arrangements for the companies including FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the Tokyo Stock Exchange's market of the high-growth and emerging stocks. Recently more and more venture-backed companies conduct an IPO and FinTech startups are expected to do the same.

In line with current trends, FinTech startups are now raising finance by way of a rights offering, for example:

• QUQINE JAPAN, which manages a virtual currency exchange, raised about JPY 1.7 billion through a rights offering in 2016.
• Exchange Corporation K.K., which offers a credit service without the use of cards (Paidy), raised about JPY 50 million in 2014 and about JPY 1.5 billion in 2016 through a rights offering.
• More recently, Kyash K.K., which offers a free remittance application (Kyash), raised more than JPY 1 billion through a rights offering.
• freee K.K., which offers cloud accounting software, raised JPY 800 million in 2014 and JPY 4.5 billion in 2015 through a rights offering.

Incentives and reliefs

The National Diet (Japan's legislature) recently amended the Consumption Tax Law (Japanese Value Added Tax) such that the purchase of virtual currency became exempted in 2017. The Ministry of Economy, Trade and Industry issued its 'FinTech Vision', which provides their basic policies and recognition of issues. The Governor of Tokyo announced that the Tokyo Metropolitan Government is planning to reduce corporate taxes and subsidize personnel expenses to attract FinTech companies.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital (VC) providers.

For instance, in Luxembourg, the Digital Tech Fund provides seed financing to entrepreneurs running innovative startup companies active in the field of digital technologies. The fund’s aim is to foster long-term innovation, support the technology startup ecosystem in Luxembourg and facilitate the transfer of new digital technologies developed at the University of Luxembourg into successful spin-off companies.

Crowdfunding

The crowdfunding sector may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

In Luxembourg, the Luxembourg House of Financial Technology (LHoFT) has been recently created. The LHoFT is a public-private joint venture that drives technology innovation for Luxembourg’s financial services industry, connecting the domestic and international FinTech community.

Among other benefits, the LHoFT offers:

• startup incubation;
• co-working spaces; and
• a soft-landing platform.

The LHoFT connects and creates value for the entire Luxembourg FinTech ecosystem: financial institutions, FinTech trailblazers, the IT industry, research and academia as well as regulatory and public authorities.

Venture capital and debt

Venture Capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

European Venture Capital Funds (EuVECA) constitute alternative investment schemes that focus on startups and early stage companies such as FinTechs. EuVECA have been implemented by the Regulation n° 345/2013 on European Venture Capital Funds (Regulation 345/2013). As part of its drive to improve the functioning of Europe's capital markets and to develop alternative sources of finance for small and medium-sized enterprises, including VC, in July 2016 the European Commission announced amendments to Regulation 345/2013 to encourage more fund managers to establish funds under this regime. A political agreement between the co-legislators was reached on 30 May 2017 and the revised regulation should be formally adopted soon.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms such as Lendix and CrossLend, which bring individual borrowers and lenders together without the involvement of traditional banks.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Luxembourg has both debt and equity capital markets which are accessible to businesses.

A FinTech that has grown to a certain size may finance itself by way of an Initial Public Offering (IPO). An IPO is the initial sale of company shares on a public exchange, such as the Luxembourg Stock Exchange.

Marketplace loan securitizations have been launched in Luxembourg, where loans originated via marketplace lending platforms are packaged together and sold to investors as bonds. For example, in 2015 CrossLend set up a securitization vehicle to carry out P2P lending. The CrossLend subsidiary issuing the bonds decided to be regulated in Luxembourg because of Luxembourg’s expertise in securitization, as well as the accessibility and responsiveness of the Commission de Surveillance du Secteur Financier (CSSF).

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

A range of support initiatives make Luxembourg the ideal place to engage in a FinTech startup. FinTech startups can combine private funding with public funding schemes for research, development and innovation.

Also, FinTech companies can obtain funding from the €150 million Luxembourg Future Fund (which aims to stimulate the diversification and sustainable development of the Luxembourgish economy – ie companies active in the information and communications technology, cleantech and other technology sectors excluding health technologies and life science sectors), as well as the Digital Tech Fund. Meanwhile, incubator and accelerator facilities offer physical space designed to foster business development and provide invaluable networking opportunities.

Different platforms such as the Luxembourg House of Financial Technolgy (LHoFT) exist, bringing together financial institutions, FinTech innovations, research, academia and public authorities, to help drive forward the development of products which meet specific industry needs.

Tax incentives

New Luxembourg intellectual property regime

 

Intellectual property ("IP") rights relating to FinTech may benefit from the new IP regime introduced in Luxembourg law in March 2018. The new article 50ter of the Luxembourg Income Tax Law provides for a partial exemption of 80% on the net income derived from eligible IP assets

Under this law, patents and copyrights on computer software, among others, including those related to FinTech, are eligible assets for the preferential tax treatment. However, assets of marketing nature, such as trademarks, are outside of the scope.

Eligible income that will qualify for preferential tax treatment includes net income from direct use, royalties from the granting of licenses or income from the sale of eligible IP assets.

The proportion of net income qualifying for the preferential tax treatment will be determined based on the nexus ratio, which is the proportion of eligible expenditure to total expenditure. Total expenditure, under the law, basically includes research and development ("R&D") expenses directly related to the IP assets in question.

All costs not directly related to an eligible IP asset (e.g. real estate costs, interest, financing costs and acquisition costs of IP assets) are not eligible and fall outside the scope of the calculation of the tax exempt income.

The eligible expenditure can be uplifted by 30%. This uplift is allowed as long as the eligible expenditure does not exceed the total amount of expenditure.

The IP activity of the company should be properly documented to demonstrate the link between the eligible IP assets and the related expenses. The taxpayer must also be ready to share this information with the Luxembourg tax authorities, if need be.

Deductibility of interests

Payments of interest made by a Luxembourg borrower to a lender through a P2P platform are, in principle, exempt from withholding tax.

Early stage 

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals, (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers. 

Crowd funding is becoming more prevalent and FinTech startups are having recourse to crowd funding as well in their early stages. 

Venture capital and debt 

Venture capital funding is a type of equity investment for FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions. 

Warehouse and platform funding 

Warehouse and platform funding is not common in Mauritius. 

Senior bank debt and capital markets funding 

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base. 

Incentives and reliefs 

There is a tax-holiday of eight years for new companies involved in innovation-driven activities on the income derived from the totality of Intellectual Property Assets. Besides that there are no other tax incentives.

Following the Mauritian Budget Highlights 2019/20, further fiscal measures were taken to promote the FinTech field in Mauritius. Thus under the Innovation Box Regime, existing companies will now also benefit from the eight-year income tax holiday on income derived from intellectual property assets developed in Mauritius after June 10, 2019. Peer-to-peer Lending operators will now be granted a five-year tax holiday provided that the company starts its operation before December 31, 2020. Ecommerce platforms will now also benefit from a five-year tax holiday, provided that they are incorporated before June 30, 2025.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as angel investors) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdfunder.mx and Play Business.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Mexican market which offer support, facilities and funding for startups, often in return for an equity stake. For example, the Startup Bootcamp Fintech has an accelerator program which offers entrepreneurs free office space, mentorship, global network access, and funding. It is a joint venture between Startupbootcamp and Finnovista (another leading platform for accelerating FinTech innovation in Latin America); and they are supported by leading institutions such as Visa, BanRegio, Gentera and EY.

In early 2013, the Mexican Government created the National Entrepreneur Institute (Instituto Nacional del Emprendedor or INADEM), an administrative body within the Ministry of Economy specifically aimed at developing a stronger entrepreneurial ecosystem. INADEM administers the National Entrepreneur Fund (Fondo Nacional Emprendedor) which is open to support FinTech companies. Some states in Mexico also provide certain incentives and have their own entrepreneurship institutes providing different types of support to the FinTech sector.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions. There are various examples of Mexican FinTech companies receiving venture capital, such as Kueski (lending platform), Konfio (lending platform), Clip (payment processor platform) and Kubo Financiero (peer-to-peer (P2P) lending platform).

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor. Some of the big corporates in Mexico have started to follow this global practice, albeit through accelerators. Companies such as Telefónica, Cinépolis, Volaris, Axtel, Coca-Cola, Grupo Expansión, Hoteles City Express, Ternium, and Banregio have established initiatives to interact with startups. An active player in Mexico is Telefonica’s Wayra.

An additional funding option is venture debt, which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital. This alternative is still not common in the FinTech sector in Mexico.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator. Some FinTech companies may see warehouse funding as a temporary form of financing to be followed by a larger capital markets transaction at a later date. This alternative is still not common in the FinTech sector in Mexico.

Another alternative form of funding is by way of P2P lending platforms such as Kubo Financiero, Prestadero and Doopla, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments; interest is paid on the money borrowed instead.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Mexico has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) has not been a funding option for FinTech companies in Mexico given that they have not reached the size required for an IPO to become available. An IPO is the initial sale of company shares on a public exchange, such as the Mexican Stock Exchange (MSE), currently the only stock exchange operating in Mexico. On 29 August 2017, the Mexican Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) granted Central de Corretajes (CENCOR) a new concession to operate a new stock exchange in Mexico, which will operate under the name of Bolsa Institucional de Valores (BIVA) and will be supported technologically by NASDAQ. It is anticipated that BIVA will initiate operations in early 2018. It is expected that BIVA will be targeting smaller companies than those listed in the MSE, providing better chances for IPO funding to FinTech companies in Mexico.

FinTech companies in Mexico have not explored funding alternatives through debt capital markets, although there are various alternatives available, such as bonds and securitizations.

Convertible bonds/loan notes

A funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes, which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances. Mexican FinTech companies have started to explore this funding alternative, such as Kueski, a leading online lending platform in Mexico.

Incentives and reliefs

The Mexican Income Tax Law provides a 30% tax credit for research and development (R&D) expenses, including investments in R&D. The tax credit will be equal to current-year R&D expenses in excess of the average R&D expenses incurred in the previous three years. This incentive cannot be combined with other tax incentives.

There is a wide variety of targeted incentives that encourage specific types of economic development, however, FinTech-specific incentive programs are scarce. Prosoft is an initiative aimed at developing a strong, competitive, and global IT sector in Mexico, by supporting companies from strategic sectors to develop innovation ecosystems through collaborations among private sector, government, and the academic sector. The initiative is managed by the Ministry of Economy and provides cash grants for up to 70% of eligible expenses.

Local governments also provide certain incentives that are available to FinTech companies in Mexico.

Early stage

The initial investment

Investment in FinTech companies can be made by the family and friends of the founders and other wealthy individuals (investors) in exchange for an equity stake. These investments are used to finance the company and growth the company's initial investment before more significant investments are available.

The people who invest can also bring their know-how and expertise to contribute to the development of the company.

Crowdfunding

Crowdfunding can be appropriate for a FinTech start-up company. It is the investment by individuals, in a company, through an intermediary platform.

Venture capital and debt

Private equity is a financial activity that consists of a professional investor entering, for a fixed period of time, into the capital of companies, not listed on the stock market, requiring equity capital. Venture capital is one component of this.

It can finance start-up, growth, transmission or recapitalization in the event of difficulties.

It is an alternative source of financing available to companies facing the constraints and limits imposed by traditional sources of financing such as equity, bank financing and public offerings.

Venture capital financing is a type of equity investment that typically targets early-stage FinTech companies with an established business and business history. Venture capital is a viable alternative to traditional loans because it is unlikely that the company has the tangible assets or long history necessary to attract traditional debt financing from financial institutions.

Investors provide equity or quasi-equity financing to companies in the creation or start-up phase of their business.

Depending on the maturity of the project to be financed, venture capital is subdivided as follows:

• the creation finances the start-up of the company's activity;
• post-creation occurs when the company has already completed the development of a produces and needs capital to start production and marketing.

Senior bank debt

Once a FinTech company is established and proven, bank debt becomes a more viable source of financing, whether secured or unsecured, depending on the company's creditworthiness and assets. Unlike financing in financial markets, which often includes restrictive covenants, bank financing generally involves the imposition of restrictive covenants and financial controls that will apply throughout the duration of the facility.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Geldvoorelkaar or Lendico.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Banks in the Netherlands are currently also either funding or starting hybrid forms of marketplace lending. For example, Rabobank launched Rabo&Co, an online platform where its high-net-worth bank clients can provide up to 49% of loans provided to entrepreneurs who are clients of Rabobank (Rabobank always provides at least 51% of the loan).

The EU is planning to adopt harmonised legislation on the operation of cross-border crowdfunding platforms.

Accelerators

There are various incubators or accelerators which offer support, facilities and funding for startups, often in return for an equity stake. Well-known accelerator programs are Startup-bootcamp and Rockstart.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund, examples of which include Liberty Global Ventures, ABNAMRO Digital Impact Fund and Prime Ventures. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through VC.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms such as Geldvoorelkaar, CrossLend, Lendex and Lendico, which bring individual borrowers and lenders together without the involvement of traditional banks. 

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Companies that have grown to a certain size may raise finance by way of an Initial Public Offering (IPO). An IPO is the initial sale of company shares on a public exchange, such as Euronext Amsterdam. 

Incentives and reliefs

In the Netherlands, until January 2021, interests and royalties are not subject to withholding taxes. Additionally, the Netherlands applies, under certain conditions, a full exemption on profits derived from (foreign) activities. The Netherlands also has an extensive tax treaties network that offers the possibility to repatriate profits with no, or minimal tax leakage. As a result, the Netherlands is an attractive European hub for investing in or expanding FinTech businesses worldwide. In addition, the following tax incentives may be available to FinTech businesses.

Research and development (R&D) wage tax credit

The WBSO (R&D tax credit) of the Ministry of Economic Affairs is intended to provide entrepreneurs an incentive to invest in research. Provided that certain conditions are met, the R&D tax credit results in a reduction of wage tax and national insurance contributions due by employers in connection with R&D activities in the Netherlands.

Innovation box

The innovation box regime aims to encourage investments in technical R&D. Under the innovation box regime, profits derived from certain qualifying self-developed intangibles (eg software) are taxed at an effective rate of 7% if certain conditions are met.

30% ruling

Only 70% of the wages of qualifying expats in the Netherlands are subject to income tax; this is because they are entitled to a substantial income tax exemption of up to 30% for a maximum period of five years.

Advance Tax Rulings (ATRs) and Advance Pricing Agreements (APAs)

The Netherlands has an extensive and reliable advance-ruling practice. The Dutch tax authorities can provide advance rulings for various types of structures and activities.

No net wealth tax, stamp duty or lump-sum tax

The Netherlands has no net wealth tax, stamp duty or lump-sum tax.

Early stage

Seed Investment

Initial investment in FinTech businesses may be provided by family, friends and close business associates of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Offers of financial products by a FinTech business to its close business associates (directors, senior managers, etc) or to relatives of directors do not generally require disclosure under the Financial Markets Conduct Act 2013 (FMCA).

Small offers

Offers of financial products by a FinTech business to persons who are likely to be interested in the offer (having regard to previous contact with that person or that person's statements or actions) do not require disclosure under the FMCA if the financial products are equity or debt securities and provided that not more than NZD2 million is raised from not more than 20 investors in any 12-month period.

Crowdfunding

The crowdfunding sector is well established in New Zealand, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through a licensed crowdfunding service, such as Snowball Effect or Equitise.

In New Zealand, a person provides a crowdfunding service if they provide a facility by means of which offers of shares in a company are made and the principal purpose of the facility is to facilitate the matching of companies who wish to raise funds with many investors who are seeking to invest relatively small amounts. Providing a crowdfunding service in New Zealand requires a market services license issued by the Financial Markets Authority (FMA). The eligibility criteria for a license for a crowdfunding service include requirements that the provider has:

• fair, orderly and transparent systems and procedures for providing the service;
• an adequate anti-fraud policy;
• adequate disclosure arrangements to give investors information to assist in the decision to acquire shares;
• an adequate fair dealing policy;
• adequate systems to ensure that each issuer does not raise more than NZD2 million in any 12-month period under the service; and
• adequate systems for handling conflicts of interest.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access. Offers of shares are limited to NZD2 million in any 12-month period.

Accelerators

There are various angel networks, incubators or accelerators in the New Zealand market which offer support, facilities and funding for startups, often in return for an equity stake.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through VC.

New Zealand Venture Investment Fund

The New Zealand Venture Investment Fund (NZVIF) was established by the New Zealand government in 2002 to build a vibrant early stage investment market in New Zealand. It has NZD245 million of funds under management which are invested through two vehicles: the NZD195 million Venture Capital Fund of funds and the NZD50 million Seed Co-investment Fund.

NZVIF does not invest directly into companies but makes its investments either through privately managed VC funds, or alongside experienced angel investors, who it partners with to invest into New Zealand-originated, high-growth potential companies. NZVIF can invest up to NZD25 million into a new VC fund, provided there is at least matching private sector support, a demonstrable track record and an experienced team.

Warehouse and platform funding

FinTech platforms (such as peer-to-peer (P2P) lending platforms) may be able to source institutional funding lines from domestic and international lenders and investors, with those funds available to be lent out through the platform. Access to this type of platform funding depends on the availability of funders with an understanding of, and risk appetite for, exposure to the relevant asset class (e.g. P2P loans).

Warehouse financing may be available for FinTech companies which own or can offer exposure to a sizeable portfolio of assets. The funding is secured by assets acquired by a special purpose trust from the originator. The senior lenders will typically only fund a portion of the assets, with the remainder being financed by way of mezzanine lending and/or subordinated lending from the originator.

Senior bank debt and capital markets funding

Senior bank debt

FinTech companies will often start out with overdraft arrangements from a bank supported by the company's directors or shareholders.

Once a FinTech company is more established and has a track record and asset base, bank debt becomes a more viable source of funding for working capital, accounts management and liquidity purposes. In contrast to capital markets funding, which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility.

Capital markets funding

New Zealand has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) is a potential funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the NZX.

Larger FinTech companies may also access funding by issuing bonds to wholesale or retail investors as a way of raising more competitive funding, but retail issues involve significant regulatory compliance costs under the FMCA.

Another potential funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

Callaghan Innovation

Callaghan Innovation is a government agency in New Zealand and is tasked with supporting hi-tech businesses in New Zealand with innovation. It is one of the government's key priorities to build a stronger, more competitive economy for New Zealand and to boost the growth of firms in the manufacturing and services sector.

Callaghan Innovation's main objective is to support science and technology based innovation and its commercialization by businesses in order to improve their growth and competitiveness. It achieves this objective by providing research and development grants, access to experts and undertaking collaborative projects to reduce research and development costs and share industry knowledge.

Research and development loss tax credit

The aim of the research and development (R&D) loss tax credit is to allow startup companies (with an R&D focus) to refund tax losses caused by qualifying R&D expenditure.

To 'cash out' any tax losses from R&D expenditure the startup must meet the eligibility criteria. To be eligible the company must:

• be a tax resident in New Zealand;
• have a net loss in the corresponding tax year;
• have eligible R&D expenditure for the income year;
• have sufficient R&D wage intensity;
• meet the corporate eligibility criteria; and
• own (solely or jointly) the intellectual property and know-how that results from the R&D activity.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. An example is the FintechAngels at TheFactory. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

Crowdfunding has also been introduced in the Norwegian market. This type of funding may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform.

The Norwegian market has primarily reward-based crowdfunding, which provides investors with a tangible benefit, such as early access to a platform or an application that the business is developing.

Accelerators

There are various incubators or accelerators in the Norwegian market which offer support, facilities and funding for startups, often in return for an equity stake. For example, TheFactory operates as an accelerator, incubator and mentor for FinTech companies and offers an investment up to NOK 350,000 in return for 5%-to-12% equity.

Government programs

Innovation Norway (Innovasjon Norge) is the Norwegian Government’s most important instrument for innovation and development of Norwegian enterprises and industry. Innovation Norway supports companies in developing their competitive advantage and encouraging innovation. The organization also provides services for startup companies, such as mentoring and startup grants. More information can be found here.

Venture capital and debt

Venture capital funding is a type of equity investment, usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed, to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically offered as a convertible bond or loan.

Peer-to-peer platform funding

An alternative form of funding is by way of peer-to-peer (P2P) lending platforms, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead interest is paid on the money borrowed. This is relatively new in the Norwegian market, but is anticipated that we will see more and more of this type of funding in the future.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Norway has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) is a popular funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the Oslo Stock Exchange (Oslo Børs).

Oslo Axess and Merkur Market provide alternatives to the Oslo Stock Exchange. Oslo Axess is a regulated market, suitable for companies that have less than three years of history and who seek a quality stamp and other benefits associated with listing on a regulated market. Merkur Market is a multilateral trading facility and an option for all types of companies, ranging from newly incorporated growth companies, to savings banks or mature industry companies, that do not satisfy the listing requirements, or do not wish to be fully listed on a regulated market.

Convertible bonds/loan notes

A popular funding tool for startup companies, including FinTech businesses, is to issue convertible bonds or loan notes, which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

SkatteFUNN R&D tax incentive scheme is an initiative designed to stimulate research and development (R&D) in Norwegian trade and industry. Businesses and enterprises that are subject to taxation in Norway are eligible to apply for SkatteFUNN.

The incentive is a tax credit and comes in the form of a possible deduction from a company's payable corporate tax. Small and medium sized businesses that satisfy the relevant requirements can obtain tax relief in respect of up to 20% of their project costs, and larger businesses that satisfy the relevant requirements can obtain tax relief in respect of up to 18% of their project costs. More information about the SkatteFUNN R&D tax incentive scheme can be found here.

Seed investment

Initial investment in FinTech business may be provided by families and friends of the founders through their own capital and other high-net-worth individuals that invest in the FinTech business in return for an equity stake (often known as business angels). Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers. There are some private initiatives in Peru that aim to link business angels with FinTech businesses.

Venture capital

Venture capital funding is a type of equity investment usually targeted at early-stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest in companies that have already received investment through venture capital. Local investment funds, whose target is venture capital investment, are being developed to fund FinTech businesses that are already developed and need to grow. In addition, overseas funds and other entities are starting to invest in Peruvian FinTech initiatives.

State investment

The Peruvian state has initiatives which provide lending to encourage seed investment for starting businesses and venture capital for business that need to grow through the Production Ministry. Additionally, the National Council of Science, Technology and Technological Innovation (Concytec), which is the government entity engaged in promoting the development of technology, has different funds for financing science and technology.

Bank debt and capital markets funding

Currently, FinTech is considered to be a potentially risky business at an early stage of development. Consequently, banks are not promoting this type of debt in the market. Moreover, as the FinTech sector is not yet advanced in Peru, FinTech companies are unlikely to obtain financing through the capital markets. Nevertheless, as the FinTech business consolidates in the country, it is expected that its funding would diversify.

Early stage

The FinTech industry is developing very well in Poland; however, some, barriers still remain. Polish law does not include specific provisions which would facilitate provision of FinTech services or development of FinTech businesses at the early stage of their operation. Moreover, there remain certain difficulties in obtaining financing of FinTech startups. 

Seed investment

Seed investment is mostly used in the establishment of and early investments in a business. The vast majority of Polish FinTech startups indicate that the main source of funding at the early stage of their business activity comes from their founders' budget.

So-called business angels are an increasingly popular solution to finance FinTech startups. A business angel is a person who has his/her own capital and who wants to use it to finance new companies and new ideas. In exchange for their capital, business angels receive a minority stake in the company. In Poland there are a number of associations of business angels, including Lewiatan Business Angels or the Network of the Business Angels, ‘Amber’. Many FinTech startups cooperate with these associations.

Crowdfunding

Crowdfunding is a type of social financing and is one of the most popular solutions to finance startups in Poland. There are many crowdfunding platforms which provide an opportunity to present new projects and raise funds, including beesfund.com, odpalprojekt.pl, findfunds.pl.

Accelerators

In Poland there are many incubators or accelerators that offer financial support for startups. The most popular is the ‘Start in Poland’ program, financed by European Union funds, which offers PLN 3 billion for initial investments in startups. The program is under the auspices of the Polish Ministry of Development.

Venture capital and debt

The financing of FinTech startups by venture capital funds, being investment funds that acquire private equity stakes in such startups using the money of investors (mainly Polish banks) is one of the most important sources of financing for FinTech startups in Poland. It should be noted however that it is targeted primarily at early-stage FinTech businesses.

Warehouse and platform funding

At this time there are no public examples of Polish FinTech companies using warehouse or platform funding as a source of financing for the purpose of developing their business.

Senior bank debt and capital markets funding

Senior bank debt funding

As a general rule, senior bank debt is available to FinTech businesses. In practice however, at the early stage of their activity, obtaining senior debt funding may prove to be difficult. It stems from the high risk encumbering FinTech startups as well as lack of property which might secure the repayment of credit facility or loan.

Capital markets funding

Raising funds through the capital markets, in particular listing shares on the Warsaw Stock Exchange, is available to FinTech businesses. In practice, only companies that are well established in the Polish market (such as eCard S.A.) have been able to raise capital via this method of funding.

Incentives and reliefs

The FinTech market in Poland is developing rapidly, but at the same time the legal and financial regulations are not supportive of new developments. Moreover, the government is not providing sufficient support for startups, which is needed due to the risk-averse approach of investors and entrepreneurs. There are no special incentives or reliefs directed solely at FinTech startups.

However, in 2017 the so-called Small Act on Innovation came into force. The act introduces a new tax relief for startups connected with the research and development sector.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as PPL.

There are four types of crowdfunding in Portugal:

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Donation-based crowdfunding involves investing through a donation that may or may not have a non-monetary return.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.
• Loan-based crowdfunding involves the financed entity repaying the obtained financing through the payment of interest determined on the moment of the funding.

Crowdfunding offers many private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

The legal framework regarding crowdfunding has been recently approved:

CMVM Regulation on Crowdfunding (loan based and equity based) (Regulamento da CMVM n.º 1/2016)

Legal Framework on Crowdfunding (Lei n.º 102/2015, de 24 de agosto)

Sanctioning regime applicable to crowdfunding Activities (Lei n.º 3/2018, de 9 de fevereiro)

Accelerators

There are various incubators or accelerators in the Portuguese market which offer support, facilities and funding for startups. Dedicated to FinTech, the most relevant accelerator in Portugal is SIBSPAYFORWARD.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund can share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

In Portugal, venture capital is the main source of funding for technological firms and startups of all sizes.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding, which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

In Portugal, the most popular way for funding arrangements in the capital markets is by way of Initial Public Offering (Oferta Pública de Venda), when a company or an investor proposes to the general public to buy certain transferable securities and wishes to trade the stocks in the stock market. However, this is not a common form of funding arrangement for growing FinTech businesses.

Incentives and reliefs

There are a number of investment incentive programs in Portugal in co-partnership with the European Commission, their applicability depending on the size and dimension of the applicant company, focused on stimulating economic development and competitiveness. The most relevant investment incentive program in Portugal is Portugal 2020, and although not specifically directed to FinTech, these types of companies may be eligible, if they meet the requirements.

The Seed Initiative is designed to help small, early-stage companies raise equity finance by offering individuals who invest in the shares of qualifying startups an income tax relief of 25% of the eligible amount invested, up to 40% of the investor’s Individual Income Tax, up to a maximum investment of €100,000 per year.

In addition, according to the Investment Tax Code, the activities of research and development (R&D), high-tech and information and communication technology are eligible for tax credits as an incentive designed to encourage companies to invest in those fields. Investment projects in such fields may benefit from a certain amount of tax credit (10% to 25% of the relevant applications of the investment project) in Corporate Income Tax, an exemption or reduction in Municipal Tax on Real Property and Municipal Tax on Real Estate Transfer, as well as an exemption in Stamp Tax regarding all contracts necessary for the investment project.

The Enterprise Investment and Development Tax Incentives Scheme (SIFIDE) offers a Corporate Income Tax deduction of 32.5% of the expenses incurred on research or development (and additionally the possibility to deduct 50% of the increase of expenses in R&D). In the case of micro, small and medium-sized enterprises the deduction rate applicable, in certain circumstances, is 47.5%.

Finally, the Patent Box Scheme enables companies to exclude 50% of the profits earned from its patented inventions from Corporate Income Tax, within certain limits and provided certain conditions are met.

Early stage

Seed investment

Since FinTech has yet to develop in Puerto Rico, we are not aware of any funding arrangements or incentives specifically targeted at this sector. There are, however, funding mechanisms available for startups or innovative businesses more generally, addressed below. Initial investment in startup businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Grupo Guayacan, a non-profit dedicated to promoting entrepreneurship, has recently launched a fund to invest seed capital in startups.

Crowdfunding

Crowdfunding may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Kickstarter.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

To our knowledge, there is no equity crowdfunding platform specifically geared to Puerto Rico businesses; however, as Puerto Rico is part of the US, US-based platforms are available and have been used by local businesses. We know of one local reward-based crowdfunding platform, Antrocket, although it appears to be currently inactive. As with equity crowdfunding platforms, reward-based crowdfunding platforms based in the US are available for local businesses.

Accelerators

There are various incubators or accelerators in Puerto Rico which offer support, facilities and funding for startups, sometimes in return for an equity stake. The most well-known is Parallel18, which is a program of the Puerto Rico Science, Technology and Research Trust which offers cash grants, together with mentoring from industry experts. Several municipalities, including Caguas and Mayaguez, also operate incubators/accelerators. In addition, there are several business plan competitions in Puerto Rico which also provide cash grants and mentoring. The best-known is called EnterPRize and is run by Grupo Guayacan.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

There are a few VC funds in Puerto Rico. The best-known is Advent-Morro.

To our knowledge, venture debt is not available in Puerto Rico.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator. Warehouse financing is unusual in Puerto Rico, except in the context of commercial and residential mortgages. It is sometimes seen in subsidiaries of large companies, as part of a broader US or global financing. Asset based loan financing by banks is somewhat more common.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead interest is paid on the money borrowed. We are not aware of any local P2P lending platforms, but local businesses have access to US P2P lending platforms.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes. Bank debt is the most common financing method in Puerto Rico, as the local banking sector is robust and sophisticated.

Capital markets funding

Puerto Rico has no equity capital markets. The US equity capital markets are accessible to Puerto Rican businesses, but most Puerto Rican businesses are too small to make this a viable financing alternative. Currently, there are only a handful of publicly listed Puerto Rico-based companies (principally banks and insurance companies).

Puerto Rico has private debt markets (mainly bonds and notes), although these have been significantly reduced as a result of the current financial crisis. In the past, companies issued industrial revenue bonds (known as AFICAs) and banks issued preferred debt. There have also been private placements of debt by hotel and resort companies, a private toll road, the operator of the airport and certain conduit offerings, all of which are sizeable businesses.

Convertible bonds/loan notes

Convertible bonds or loan notes are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances. Convertible bonds are not all that common in Puerto Rico.

Incentives and reliefs

Puerto Rico's new Incentives Code became law on 1 July 2019. The Incentives Code effectively consolidates all tax incentives available for different economic activities into a single legislative measure, including export services businesses ("ESBs“) previously covered under Act No. 20-2012, the Act to Promote the Exportation of Services (APES), as well as private equity funds ("PEFs“) previously covered under Act No. 185-2014, the Private Equity Funds Act (PEFA) .

The Incentives Code promotes the establishment of ESBs in Puerto Rico by granting tax incentives for exporting services from Puerto Rico to persons outside of Puerto Rico with no nexus to Puerto Rico. Among the export services covered by the Incentives Code are (collectively, “ESB Eligible Activities”):

• blokchain and cloud-computing services;
• research and development;
• advertisement and public relations;
• consulting;
• investment banking, asset management and other financial services; and
• professional services such as legal, accounting, architectural and engineering services, among others.

In general, qualifying ESBs must file an application with and obtain a tax decree from the Department of Economic Development and Commerce (DDEC, for its Spanish acronym) (“ESB Decree”) to receive the following tax benefits:

• a 15-year binding contract with the government of Puerto Rico, which means that the constitutional prohibition against the impairment of contracts should protect the awarded tax benefits from any potential revocation or amendment by subsequent legislation;
• a 4% income tax rate on the net income derived from the ESB Eligible Activities covered by the ESB Decree;
• no income tax on dividend distributions the ESB makes out of its earnings and profits derived from the APES Eligible Activities;
• a 50% exemption from municipal license taxes on the volume of business derived from the ESB Eligible Activities; and
• a 75% exemption from real and personal property taxes with respect to property used in the ESB Eligible Activities.

The Incentives Code has two aims with respect to PEFs: to promote investment in entities that do not have access to public capital markets and to attract capital investments in Puerto Rico.

 In general, the Incentives Code provides that any limited liability company or partnerships (domestic or foreign) engaged in the business of investing in such instruments or notes, bonds, or stock (not traded or quoted in public markets when acquired) may file an application with the DDEC to be treated as a PEFs, subject to certain conditions. Among other requirements, this limited liability company or partnership must have an office in Puerto Rico and must enter into a contract with a registered investment advisor who is engaged in trade or business in Puerto Rico, which may subcontract another investment advisor that is located outside Puerto Rico. In addition, the Incentives Code provides that a series limited liability company (LLC) may elect to be treated as a single "private equity fund," regardless of the number of series. The Incentives Code also provides that securities issued by the government of Puerto Rico are eligible investments for purposes of the minimum investment in Puerto Rico securities requirements. Finally, the diversification threshold for investing in a single business is 50%.

Under the Incentives Code, a qualifying PEF must file an application with and obtain a tax exemption grant from the DDEC , the content and specifications of this application of which are not yet available, to receive the following tax incentives:

• The PEF is treated as a partnership for Puerto Rico income tax purposes. Accordingly, a PEF is not subject to Puerto Rico; instead, the investors are subject to Puerto Rico income tax with respect to their distributive share of the income of the PEF.
• The share of an accredited investor of dividends and interest derived by the PEF is subject to a Puerto Rico fixed income tax rate of 10%. Nevertheless,  interest or dividend income derived by the PEF and that is exempt from Puerto Rico income tax is also exempt for the accredited investors.
• An accredited investor’s share of capital gains derived by a PEF is exempt from Puerto Rico income tax.
• Capital gains from the sale of the private equity fund interest are subject to a Puerto Rico fixed income tax rate of 5%. However, if total gross proceeds are reinvested in a Puerto Rico private equity fund within 90 days from the date of the sale, such capital gains are not subject to Puerto Rico income tax.
• In the case of registered investment advisors, general partners and private equity firms, interest and dividend income is subject to a Puerto Rico income tax rate of 5% and capital gains are subject to a 2.5% tax rate.
• A 30% or 60% deduction with respect to the initial investment in the PEF, provided certain rules are met and a 75% exemption on real and personal property taxes and 100% exemption on municipal license taxes; however, property such as stock, bonds, notes, promissory notes and other securities or debt instruments in which a PEF invests in is exempt property under the Municipal Property Tax Act of 1991, as amended, and is not otherwise subject to Puerto Rico personal property taxes.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

Crowdfunding may be appropriate for a FinTech business in the early stages. This involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdcube or Crowdfunder.

There are two main types of crowdfunding: equity and reward-based.

• Equity-based crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Lending via crowdfunding platforms has begun to develop in recent years, but the local market remains immature. Most of the platform providers are organized as foundations and the fundraisers are usually non-profit organizations or natural persons. Generally, they are structured to function on the basis of donations received by the fundraiser and rewards (in the form of services or products) provided at a later date to the donors. The types of projects which have successfully raised the proposed financing are usually arts and technology orientated.

A legislative initiative for the enactment of a law on crowdfunding was launched during 2015. The draft has been approved by the Romanian parliament first chamber and it is currently under discussion in front of the second chamber (the Deputies House). Once implemented, the draft law will regulate both equity-based crowdfunding as well as credit-based crowdfunding. Donation-based crowdfunding structures are expressly excluded from the scope of the draft law and it is expected that these types of platforms will continue to function as they currently do. Reward-based crowdfunding is not mentioned expressly.

Accelerators

There are various tech events or accelerators in the Romanian market which offer support, facilities and funding for startups, often in return for an equity stake. In 2016 there were almost 200 startups financed in this way in Romania. These ‘angel advisors’ help startups not only with funding but also with mentoring and guidance.

Venture capital

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

VC funding is being used more frequently by FinTech companies in the first years of their existence, with 20 startups in Romania raising €11.3 million in total in 2016. For example, Vector Watch (owned by Romanian entrepreneurs and recently acquired by the global wearable giant Fitbit) raised €5 million in 2015. Also, a Romanian robotic form-scanning software company, UiPath has raised $30 million in venture funding, marking one of the largest early-stage tech investments in Central Europe.

Warehouse and platform funding

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead interest is paid on the money borrowed. In the Romanian market, some foreign P2P lending platforms are used by both Romanian investors and borrowers and a leading non-bank mortgage loan originator in Romania (Extra Finance) recently joined the Mintos marketplace. Domestic P2P lending platforms are also being developed.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding, which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

While more common in other jurisdictions, FinTech fundraising by way of an Initial Public Offering or loan securitization have not, to our knowledge, been used as yet in Romania.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access. It involves members of the public investing in a business by pooling their resources through an intermediary platform.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding (crowd-investing) involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

While most of the local crowdfunding platforms (Planeta.ru, Boomstarter) are in the early stage of development, the international sector is well established, and may be attractive for a Russian FinTech business in the early stages.

Accelerators

There are several incubators or accelerators in the Russian market, which offer support, facilities and funding for startups, often in return for an equity stake. For example, Skolkovo, Generation S and Ideal Machine, offer both investment and mentoring by industry experts.

GOVERNMENT GRANTS

Several government grants are available to early stage companies.  Grants are given to companies without any obligation to repay, but with some strings attached to the commercialization and transfer of the technology outside of Russia.  The most active organizations that currently give out grants to Russian startups are the Skolkovo and Bortnik funds.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), secured against a company's assets including an equity element, allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Senior bank debt and capital markets funding (late stage)

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis, depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

The Russian Federation has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Incentives and reliefs

State incentives

There are several government measures designed to help small, early-stage companies:

• tax schemes (Simplified Taxation System and Patent Taxation system);
• state investments (financial aid);
• supervision reliefs (eg simplified accounting standards);
• property grants (working facilities); and
• information help.

IT companies

Russia-based IT companies engaged in software development and sales activities and/or provision of technical services for developed software, are eligible for reduced rates of mandatory contributions until 2019.

Skolkovo tax incentives

Certain tax benefits are available to Russian companies that are residents of Skolkovo Innovation Centre. Generally, Russian companies can become a Skolkovo resident if they conduct qualifying research and development and innovation activities, and comply with certain other requirements. The main benefits are: profits tax exemption for ten years and reduced mandatory contributions.

Early stage

Seed investment

Alternative financing mechanisms are needed and sought as startups are having difficulties accessing to financing.

Among potential alternatives were the recourse to angel investments and crowdfunding initiatives. Angel investments have been promoted by entities like NGOs such as Enablis. Foreign business angels, especially French ones, provided some fintech businesses with initial investments.

For illustrative purposes, a tech community, composed of some 15 startups, Teranga Tech, participate in strengthening digital growth in Senegal, by encouraging skills transfer, partnerships and job-creating investments that will benefit the Senegalese economy. The community will support projects in fields such as agriculture (agritech), education (edtech), health technologies (medtech), biotechnologies (biotech), finance (fintech) and cultural and creative industries (CCI).

One of the main objectives of the community is to provide technical and financial support aimed at developing innovative entrepreneurship integrating decentralized project leaders.

Investments for small projects, with financing needs ranging between USD10,000 and USD50,000 are scarce and need to be developed.

Crowdfunding

The crowdfunding sector is at its early stage in Senegal. Crowdfunding platforms have been launched bringing together individuals, entities and charities to finance personal and charitable projects.

Crowdfunding has also been seen as a possible alternative through which foreign aid may be sent in order to resolve issues such as corruption. However, legal and regulatory obstacles have slowed that initiative that has been considered by foreign countries such as the UK.

An example of a crowdfunding finance project, is “Peeling of the Onions of Senegal.”

The STARS program (Strengthening African Rural Smallholders), in partnership with the Mastercard Foundation, assists 8,000 onion smallholders to develop marketing tools and financial products and attain a certain level of productivity and food security which will, at the end, support Senegal to become self-sufficient in onion production in the near future.

BaySeddo is a (digital) platform reuniting producer organizations and individuals looking to invest in short-term agricultural projects. The farmers’ lands, representing resources for exploitation from investors, will be added in the hope to achieve win-win results.

BaySeddo is expected to initiate similar projects with other producer organizations participating in STARS program.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. It provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a fintech startup is that the fund is able to share its knowledge and expertise of the fintech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), secured against a company's assets and including an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Entrepreneur and Director, Mrs. Caty Lo, having a rice trade and processing business activity with an annual turnover of EUR750,000 and a staff of 20, considered EUR300,000 offered by Venture capitalists, insufficient and intends to try to find financing elsewhere without having those venture capitalists to become shareholders in her business.

For the financing of her business, she also admitted that she has been able to finance investment of EUR150,000 for her own factory with own money and credit from family members.

Senior bank debt and capital markets funding

Once a fintech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Incentives and reliefs

The investment code is intended to help investors with their potential projects in Senegal. Indeed, international investors are urged to rely on local companies in the conduct of their operations in order to benefit from certain incentives offered by the legal system.

The objective is, of course, to open up opportunities for SMEs and to give an inclusive character to Senegalese economic growth. Thus, large foreign companies eligible for the benefits of the Investment Code are entitled to tax credits provided that they apply a local content policy on job creation, opening of social capital to nationals and the outsourcing.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders, other high net worth individuals (often known as angel investors) or equity crowdfunding investors in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know how and expertise to assist in the company's development. Seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Investors may also apply to the Singapore government's Angel Investors Tax Deduction Scheme between 1 March 2010 and 31 March 2020. If approved as an angel investor, the investor will receive a 50% tax deduction of the investment at the end of a two year holding period when he or she commits a minimum of S$100,000 in a qualifying startup.

The Singapore government also stimulates private sector investments into innovative Singapore-based technology startups with strong intellectual property rights and market potential through its Startup SG Equity Scheme by co-investing in them with an independent, qualified third-party investor. The government's Startup SG Founder Scheme aims to provide mentorship support and startup capital grants to first-time entrepreneurs with innovative business concepts. This scheme provides up to S$30,000 by matching S$3 to every S$1 raised by the entrepreneur.

Crowdfunding

In relation to equity crowdfunding, the sector is well established in Singapore and may be appropriate for a FinTech business in the early stages since they often have limited cashflow, making it easier for them to offer shares in exchange for services or investment in the business. Reward-based crowdfunding, where investors will receive tangible benefit to a product that a startup is developing, is also used in Singapore but more commonly found in the entertainment or fashion industry where consumers may feel a stronger personal affinity towards the products.

Accelerators

There are various incubators or accelerators in the Singapore market which offer support, facilities and funding for startups, often in return for an equity stake. For example:

• The incubator fund Expara (which works closely with the Singapore government) provides services, mentorship and training, and invests money in innovative enterprises including FinTech companies and has previously invested in market-leading FinTech players such as CoAssets (the first listed marketplace lending platform in Asia) and 2C2P (a payment services provider).
• United Overseas Bank worked with SGInnovate (a government-backed technology agency) to create FinLab, a FinTech-focused accelerator initiative that successfully produced a number of interesting FinTech companies in 2016 (including Attores, CardUp and Nickel) and is currently off and running for its second cohort.

In order to support accelerators, the Monetary Authority of Singapore (MAS) runs the Startup SG Accelerator which provides funding and non-financial support to further enhance incubators' initiatives and expertise in nurturing high potential startups.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions. The benefit of having a venture capitalist as an investor for a FinTech startup is that the VC is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

In order to promote venture capital financing for enterprises and in recognition of the factors differentiating a VC fund from other investment funds, the MAS published a consultation paper in February 2017 proposing a simplified authorization process and regulatory framework for venture capital managers and plans to implement the new rules towards the end of 2017. These proposals focus primarily on the fitness and proprietary assessment of VC managers. Therefore, unlike fund managers, VC managers will not be required to have experience as directors and representatives with at least five years of relevant experience in fund management and they can expect a shortened application process. To the extent that there are contractual safeguards to provide sufficient protection to a VC's sophisticated consumer base, the MAS is also looking to exempt VC managers from the business conduct requirements applied to asset managers in general.

An additional funding option is venture debt, which is typically structured as a three year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to acquire shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Platform lending

Peer-to-peer (P2P) lending platforms bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead interest is paid on the money borrowed.

The total amount that has been financed by the most active players in the P2P lending in Singapore is still negligible compared to the total debt/invoice financing market, though some of the companies have reached a monthly financing volume of several million Singapore dollars. Further, very few players publish their total loan book statistics. Capital Springboard claims to have financed around S$160 million, Capital Match S$44 million, Invoice Interchange S$17 million and Validus S$22 million. These amounts are commendable for startups, but cannot be compared to the overall funding market that is estimated by the MAS at S$633 billion (comprising total loans and advances to non-bank customers) in May 2017.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Singapore has both debt and equity capital markets which are accessible to businesses of certain size. Raising funds by way of an initial public offering (IPO) is therefore a popular funding arrangement for FinTech companies that have grown to a certain size.

In 2015, CoAssets listed its shares on the Australian Securities Exchange (ASX) in a deal that represented the first IPO of a Singapore grown P2P lender. Ayondo, a FinTech firm specializing in financial trading technologies, is planning a listing on the Singapore Exchange (SGX) in 2017. Upon its completion, the company will be the first FinTech company to be listed on the SGX.

Convertible bonds/loan notes

FinTech companies may issue bonds as a way of raising more competitive funding. A popular funding tool for fast growing FinTech businesses is to issue convertible bonds or loan notes which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

The regulatory sandbox (as described in FinTech products and uses – particular rules) is a key factor in attracting FinTechs to Singapore. Beyond the regulatory sandbox, there are other tax incentives promoting innovation, research and development and intellectual property management. These incentives also seek to attract new technologies into Singapore.

One of the schemes is the Productivity and Innovation Credit (PIC) scheme which was introduced in Budget 2010. Under the PIC scheme, qualifying businesses may enjoy up to 400% tax deductions/allowances for qualifying expenditure incurred in any of the six qualifying activities (such as research and development or acquisition of PIC IT equipment,) from 2011 to 2018. The concern is that with the phasing out of the PIC scheme in 2018, this could have an adverse effect on the momentum of innovation developed in Singapore over the past few years.

The MAS has also organized a return of the FinTech Festival in November 2017 and launched a new FinTech and Innovation Group within the MAS to provide information and advice to FinTech entrepreneurs.

Finally, the MAS has committed S$225 million over the next five years under the Financial Sector Technology and Innovation scheme (FSTI) to attract FinTech firms to set up innovation centers in Singapore. The FSTI scheme also has a 'Proof of Concept Scheme' which provides support to both financial and non-financial institutes in early stage development of innovative projects.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is not yet well established in Slovakia, however there have been other projects which have been successfully funded through crowdfunding. Therefore, in the future this may be an appropriate source of funding for a FinTech business in its early stages. Crowdfunding involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdberry or Conda.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

Accelerators are currently not a common way of offering support, facilities and funding for startups in Slovakia, even though an international incubator/accelerator for startups, RubixLab, is present in Slovakia. Slovak startups usually take part in the programs of foreign accelerators, such as Ycombinator or Blackbox (e.g. M.Dot – a startup that allows users to create web pages through their mobile phones – took part in Blackbox and was subsequently acquired by GoDaddy).

Even though it seemed that real estate project Binarium (created by the co-founder of IT security company ESET, Miroslav Trnka) could have become a Slovak accelerator, currently this is not the case and it serves more as a co-working space. Nevertheless, Binarium could in the future offer its tenants (mostly businesses in the technology sector) the possibility to attend professional events targeted at the community of IT specialists and technologists. However (at least so far), Binarium does not plan to provide the targeted mentoring programs nor financial investment that would normally be provided by startup accelerators.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions. In Slovakia, examples of VC funds investing into FinTech startups and technology startups more generally include Neulogy, G4 and LUKA & BRAMER GROUP.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund. Even though it is uncommon in Slovakia, one example of CVC is the acquisition of PoSam (a leading Slovak IT business) by Deutsche Telecom (DTAG) in 2010.

An additional funding option is venture debt, which is typically structured as a loan (or series of loans), secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through VC.

Warehouse and platform funding

Even though warehouse financing, as a form of inventory financing, may not be the best option for all FinTech companies, it remains a potential option to obtain financing for those companies that own a portfolio of assets.

Another alternative form of funding is through peer-to-peer (P2P) lending platforms such as Zltymelon.sk or ZincEuro.sk, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments; interest is paid on the money borrowed instead.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdrafts, accounts management and general liquidity purposes.

Capital markets funding

Although formally capital market funding is available in Slovakia, due to the fact that Slovakia itself is a small market and there is limited liquidity in the market, capital market funding is not a commonly used method of obtaining funding.

Even though it is possible to raise finance by way of an Initial Public Offering (IPO) on the Bratislava Stock Exchange, this is not a popular funding arrangement for companies. If a company grows to a certain size and considers an IPO, it usually reaches out to bigger and more active capital markets and stock exchanges in the region, such as those stock exchanges in Warsaw, Vienna or Prague.

Moreover, it is worth noting that over 95% of trades on the Bratislava Stock Exchange represent bond trades. Even though obtaining funding by way of issuing bonds to retail investors might be a reasonable option to raise more competitive funding, due to the costliness of the whole process it would not be a viable funding option for the vast majority of startups.

Incentives and reliefs

In order to encourage companies to invest in research and development (R&D), businesses that invest in R&D can, under the condition stipulated by Act No. 595/2003 Coll. on income tax, benefit from a 'super-deduction' of their R&D expenditure (costs) from their tax base.

Early stage

With the current drive to grow the South African economy, attract foreign investment and ultimately increase employment in South Africa, small and medium-sized businesses in the FinTech sector are seeing an increase in funding and support opportunities from both the private and public sector.

Private loans

Given the inherent risk, unstructured loans from family or friends of founders are arguably the most viable funding option for startup and early stage FinTech businesses. FinTech businesses can also privately place shares in their enterprises in order to raise funds. In South Africa, because the angel investor community is still relatively small, the terms of this type of financing can range from relatively generous to extremely onerous. Angel investment sizes will typically range from as little as ZAR 100,000 to ZAR 4 million, with almost all such investments originating from personal relationships. Aspiring FinTech entrepreneurs with limited angel investor personal relationships can connect with the South African Business Angels Network in order to get in touch with parties interested in making angel investments.

Venture capital and debt

The South African Revenue Service and National Treasury, with effect from 1 July 2009, introduced section 12J to the Income Tax Act, 58 of 1962 (the Act) to cater for investments in venture capital (VC) companies. Section 12J of the Act allows a person who invests in VC shares through a VC company to claim an upfront tax deduction of a 100% of the amount invested. However, as an anti-avoidance measure, section 12J is subject to strict requirements that must be adhered to by both VC companies and investors. This is one of the ways in which South Africa has created an enabling environment for VC funding. VC companies in South Africa will only invest in a company that has a scalable business model and strong intellectual property with the ability to scale five to twenty times the value at which they buy in at within a limited time frame. A list of the main VC companies can be accessed through the Southern African Venture Capital and Private Equity Association website.

Crowdfunding

Given that the Financial Sector Conduct Authority (previously known as the Financial Services Board), which oversees the non-banking financial services industry in the public's interest, has not crafted any regulations around crowdfunding there is a lack of certainty and as such no encouragement or protection for investors, making crowdfunding a less attractive investment option at present. As a result, both entrepreneurs and the economy miss out on the benefits that this funding model offers. There are however a number of platforms actively setting the South African crowdfunding space, namely, RainFin (which is an online lending marketplace that connects borrowers and lenders) and Uprise.Africa (which is looking to be South Africa's first equity crowdfunding platform).

Senior bank debt and capital markets funding

Senior bank debt

The amount of bank debt available to FinTech entrepreneurs is often limited by the security that can be offered against the loan. Senior debt requires security in the form of mortgage bonds, with security being registered over fixed assets, or in the case of term-financing of moveable assets. When making use of these forms of financing, financial institutions have no vested interest in the business' ultimate success or failure and, as such, provide no on-going business support. The collateral requirements often make this an option that is out of reach of many aspiring FinTech entrepreneurs. However, this funding option is particularly attractive for FinTech enterprises with an existing track record and positive cash flows and those entrepreneurs wishing to retain control over the strategic direction of the enterprise.

Capital markets funding

South Africa has both debt and equity capital markets which are accessible, subject to certain requirements, to enterprises.

Equity capital markets

In South Africa, over the last couple of years, the sectors most actively raising finance by way of Initial Public Offering are healthcare, financial services and real estate, among others. Technology is a sector that is rapidly increasing its activity in the equity capital markets. Although, no FinTech focused business has listed on the Johannesburg Stock Exchange (JSE) to date, we have seen FinTech founders in South Africa raise funds by way of sale of business. For example, Tyme, a mobile money business, was acquired by the Commonwealth Bank of Australia, and Fundamo, a mobile based financial services enterprise, was acquired by Visa.

Debt capital markets

Subject to compliance with both the Debt Listings Requirements and the listings requirements specifically relating to the main board of the JSE, established FinTech enterprises, acting as issuers, can list debt securities on the JSE. To offer and issue debt on a public exchange securities, an issuer must be registered as a bank, or authorized as a branch of a foreign bank under the Banks Act or must offer and issue debt securities in compliance with one of the available exemptions. The most prominent exemption for non-bank issuers is the exemption set out in the Commercial Paper Regulations which applies to prospective issuers that are listed companies or issuers with a net asset value of at least ZAR 100 million for at least 18 months prior to any issue of debt securities. The offer and sale of debt securities by a non-resident in South Africa is also subject to the prior approval of the South African Reserve Bank.

Preference shares

Although typically reserved for larger businesses, an alternative basis on which to raise finance is by way of issuing preference shares. The advantage of using this type of funding is that the dividends that a preference shareholder receives are exempt from tax under South African tax legislation. In order to benefit from the exemption on dividends, the provision of finance by way of preference shares does, however, need to comply with the requirements set out in the Income Tax Act as to the purpose of such financing and the security provided for such financing. Failure to comply with the provisions of the Income Tax Act for preference share funding has the consequence that the dividends received on account of the preference shares are deemed to be interest (which is taxable) and, accordingly, the tax benefit of such preference share funding will be lost.

Incentives and reliefs

There are also some options for obtaining government grants which, unlike loans, are awards of money that do not need to be repaid. Grants from the South African government are typically tied in with key deliverables such as; black economic empowerment, job creation and developing the economy. The selection criteria is strict, the paperwork extensive and there are often on-going reporting obligations on the business receiving a grant. The government also offers low cost finance to entrepreneurs through state owned entities such as: the Industrial Development Corporation, the National Empowerment Fund, the Technology Innovation Agency and the Development Bank of Southern Africa. The application process for government grants and financing is highly competitive.

There are a range of FinTech accelerator programs in South Africa, which are looking to rapidly grow FinTech startups not just in South Africa but in emerging markets generally. In addition, the vast majority of large corporates in South Africa have government mandated enterprise development initiatives, which provide supplier opportunities, business support and in some instances, funding opportunities. Barclays Africa, for instance, has an established global innovation program called RISE which supports FinTech innovation, provides FinTech business development support and offers opportunities for global collaboration.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is being establishing progressively in Spain, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdcube, which is one of the 29 regulated crowdfunding/crowdlending platforms in Spain as of November 2019.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or an application that the business is developing. This type of crowdfunding is not regulated under Law 5/2015.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses, to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Spanish market which offer support, facilities and funding for startups, often in return for an equity stake.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Some FinTech companies may see warehouse funding as a temporary form of financing to be followed by a larger capital markets transaction at a later date.

Another alternative form of funding is by way of crowdlending platforms (Participative Financing Platforms regulated under Law 5/2015), which bring individual borrowers and lenders together without the involvement of traditional banks. Crowdlending does not involve equity investments, and instead interest is paid on the money borrowed.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Spain has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) could be a funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as any of the four Spanish Stock Exchanges (Bolsas de Valores). The Alternative Stock Market (Mercado Alternativo Bursátil or MAB) in particular caters for small, growth-orientated companies.

FinTech companies may also start to access funding by issuing bonds as a way of raising more competitive funding.

Convertible bonds/loan notes

Another funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes, which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

The ‘business angel’ regime is designed to encourage investment in small, early-stage companies by offering a 30% income tax deduction for individuals who acquire shares of qualifying startups. The deduction base is limited to €60,000 per year. In addition, capital gains derived from the sale of these shares are exempt from Personal Income Tax, provided the investor reinvests the amounts resulting from the sale in the acquisition of shares of another company of new or recent creation.

Research and development (R&D) deductions from CIT (Corporate Income Tax) are an incentive to increase investment in R&D. The deduction rates are 25% to 42% (R&D expenses) and 8% (acquisition of certain fixed assets used for R&D activities).

The Patent Box regime provides for a reduction on net income derived from the licensing of qualifying intellectual property, (patented inventions etc.) subject to compliance with certain requirements.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for the early stages of a FinTech business which is a public company (Sw. publikt bolag). It involves members of the public investing in a business by pooling their resources through an intermediary platform.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or an application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses, to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in Sweden which offer support, facilities and funding for startups, often in return for an equity stake.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), secured against a company's assets and including an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Some FinTech companies may see warehouse funding as a temporary form of financing to be followed by a larger capital markets transaction at a later date.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms such as Lendify, Toborrow and Savelend, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments, and instead, interest is paid on the money borrowed.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Obtaining financing by way of an Initial Public Offering (IPO) is a popular funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as Nasdaq Stockholm or First North. First North in particular caters for small, growth-orientated companies.

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes, which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are, under certain circumstances, convertible into shares in the issuing company at prescribed prices.

Incentives and reliefs

There are currently no incentives or reliefs that apply specifically to FinTech companies in Sweden.

Swedish FinTech Association

The Swedish FinTech Association is a newly formed industry association for Swedish FinTech companies whose purpose is to provide a unifying platform for the Swedish FinTech community, enabling it to speak with one voice.

The association was officially formed on 17 January 2017 and it will act as a lobbyist and spokesperson within the financial industry. More information can be found here.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital (VC) providers.

Crowdfunding

Crowdfunding platforms are currently available under the supervision of the Thai Securities and Exchange Commission (SEC). The funding portal used for screening the offering company, disclosing information and educating investors must be approved by the SEC. Moreover, the approved funding portal must also categorize its members as either retail investors or non-retail investors (eg VC, private equity trust and qualified investors). Retail investors will be subject to a limit on investment while non-retail investors will not be subject to such a limit.

Currently, both equity and debt crowdfunding are permitted in Thailand.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Thai market which offer support, facilities and funding for startups, often in return for an equity stake.

Venture capital and debt

VC funding is a type of equity investment usually targeted at early-stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund, examples of which include Beacon Venture Capital (being a CVC vehicle of Kasikorn Bank PLC) or Digital Ventures (being a CVC vehicle of Siam Commercial Bank). Both CVCs are targeting FinTech startups. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

VC debt is not available in the funding market as the corporate laws in Thailand do not allow conversion of debt to equity or the issuance of convertible debt instruments by a private limited company (which is the form of business vehicle commonly used by startups in Thailand). However, we have been working with the relevant authorities to amend the relevant laws and regulations to facilitate the funding market for startups in Thailand, including amendments to allow debt-to-equity conversion and the issuance of convertible debt instruments by private limited companies in Thailand.

In addition, proposed amendments to corporate law to promote and facilitate the funding market for startups include changes to:

• allow the offer of shares in a private limited company to employees / directors under an Employee Stock Option Plan (ESOP) and creditors under debt-to-equity conversion programs or convertible debt instruments;
• enable the rights attached to preference shares to be amended by special resolution of shareholders; and
• enable a private limited company to buy back its shares, subject to certain requirements and criteria being met.

Warehouse and platform funding

The SEC is currently actively monitoring the SEC FinTech regulatory sandbox relating to investment advisors, private funds, clearing and settlement activities and electronic trading platforms (ETP).

In addition to the FinTech regulatory sandbox, there is also a know-your-customer (KYC) regulatory sandbox which enables temporary rules to apply to business activities which do not need to be supervised by the FinTech regulatory sandbox. Temporary rules for Limited Brokerage Dealing and Underwriting (LBDU) are now also available.

To participate in the SEC FinTech regulatory sandbox, FinTech companies must fulfil the requirements set out in relevant SEC regulations. Generally, to enter into the FinTech regulatory sandbox, businesses need to:

• involve innovation in financial services;
• be operationally ready in terms of capital, work systems, human resources, risk management processes and customer contact processes; and
• have an exit strategy.

Please see FinTech products and uses – particular rules.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

Thailand has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) can be done in the SET and MAI, depending on applicable criteria and requirements. However, IPOs are not a popular funding arrangement for FinTech companies because FinTech is an emerging sector with numerous applicable regulations and with incentives which are less favorable when compared to other jurisdictions in the region such as the Singapore market.

Incentives and reliefs

Thai Revenue Department (RD) has continuously provided tax incentives and reliefs to qualified startups and SMEs including its investors, e.g. VC and angel investors.  The conditions and qualifications of eligible person/entities under the tax schemes granted are amended periodically.

In respect of startup itself, the key conditions and qualifications to be eligible for 5-year corporate income tax exemption are, e.g. being incorporated during the prescribed period, having at least THB5 million of registered capital, having the income not exceeding THB30 million in the accounting year whereby 80% of which is generated from the operating targeted business, and applying for an approval with the RD.

Further to the foregoing, the startup must operate the targeted business as specified by the National Science and Technology Development Agency, including businesses in the following industries:

• food and agriculture;
• energy saving, renewable energy and clean energy;
• biotechnology;
• medical and public health;
• tourism, services and creative economic;
• advanced materials;
• textiles, fabrics and accessories;
• vehicles and auto parts;
• electronics, computers, software and information services; and
• research and innovation.

VC and angel investors are also subject to certain requirements in order to claim for tax privileges e.g. participating in an investment during the promoted period, and retaining the investment within the minimum period, etc.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the Ukrainian market which offer support, facilities and funding for startups, often in return for an equity stake. For example, Kyivstar, a major mobile operator, has an accelerator program which offers investment, and mentoring from industry experts. There are also Borsch Ventures, Polyteco, GrothUP, Founder Institute, Happy Farm and EastLab.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms, which bring individual borrowers and lenders together without the involvement of traditional banks. In 2016, UAH 5 billion was originated through P2P platforms in Ukraine. P2P lending does not involve equity investments, and instead interest is paid on the money borrowed.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. Bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft and general liquidity purposes.

Capital markets funding

The capital market in Ukraine is in a state of development. So far, funding in both debt and equity capital markets is uncommon and typically inaccessible to businesses.

Incentives and reliefs

Ukrainian legislation does not provide for any special tax incentives for FinTech companies and activities related to FinTech. However, there are certain tax incentives which may be potentially applicable to FinTech companies.

For example, small and medium-sized enterprises can benefit from 0% of income tax rate if they meet certain criteria.

Also, a supply of program products (including software) within the territory of Ukraine is temporarily exempted from VAT until 1 January 2023. This incentive may be applicable to the supply of special FinTech software.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals, (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdcube or Crowdfunder.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the UK market, which offer support, facilities and funding for startups, often in return for an equity stake. For example, Barclays has an accelerator program which offers up to US$120,000 investment from Techstars, together with mentoring from industry experts.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund, examples of which include Santander InnoVentures and Citigroup's Citi Ventures. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Some FinTech companies may see warehouse funding as a temporary form of financing to be followed by a larger capital markets transaction at a later date.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms, such as Zopa and Funding Circle, which bring individual borrowers and lenders together without the involvement of traditional banks. P2P lending does not involve equity investments; interest is paid on the money borrowed instead.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

 

The UK has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) is a popular funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the London Stock Exchange. The London Stock Exchange's Alternative Investment Market (AIM) caters specifically for small, growth-orientated companies.

A number of marketplace loan securitizations have been launched in the UK, where loans originated via marketplace lending platforms are packaged together and sold to investors as bonds by companies such as Funding Circle and Zopa.

FinTech companies have also accessed funding by issuing bonds to retail investors as a way of raising more competitive funding. For example, in July 2017 LendInvest issued an initial £50 million of retail bonds, which are tradeable on the LSE.

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes, which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering 50% income tax relief for individuals who invest in the shares of qualifying startups, up to a maximum investment of £100,000 per annum. This scheme complements the Enterprise Investment Scheme (EIS), which offers a lower rate of income tax relief of 30% to investors in higher-risk small companies. It is worth noting that some financial activities, such as money lending or insurance are non-qualifying trading activities, and as such, EIS and SEIS may not be available for all FinTech companies.

In addition, research and development (R&D) tax credits are an incentive designed to encourage companies to invest in R&D. SME businesses (those with fewer than 500 employees, and either revenue less than €100 million or balance sheet assets less than €86 million) can benefit from up to 230% tax relief on their R&D expenditure.

The Patent Box Scheme enables companies to apply lower rate of Corporation Tax (10%) to profits earned from its patented inventions.

Finally, since 6 April 2017, payments of interest made by a UK borrower to a UK lender through a UK peer-to-peer platform are exempt from withholding tax provided that certain conditions are met. To avail the exemption, the credit provided by the lender to the borrowers needs to have been provided at the invitation of a regulated operator of an electronic system.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals, (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector is well established, and may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdcube or Crowdfunder.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

Accelerators

There are various incubators or accelerators in the UK market, which offer support, facilities and funding for startups, often in return for an equity stake. For example, Barclays has an accelerator program which offers up to US$120,000 investment from Techstars, together with mentoring from industry experts.

Venture capital and debt

Venture capital funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. Venture capital provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of venture capital and involves an equity investment by a corporate fund, examples of which include Santander InnoVentures and Citigroup's Citi Ventures. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through venture capital.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

One example of warehouse financing involves LendInvest, which borrowed £40 million from Macquarie in 2016 under a warehouse facility, secured against UK mortgage loans. Some FinTech companies may see warehouse funding as a temporary form of financing to be followed by a larger capital markets transaction at a later date.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms, such as Zopa and Funding Circle, which bring individual borrowers and lenders together without the involvement of traditional banks. In 2015, £2.8 billion was originated through P2P platforms in the UK. P2P lending does not involve equity investments; interest is paid on the money borrowed instead.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

The UK has both debt and equity capital markets which are accessible to businesses (usually of a certain size).

Raising finance by way of an Initial Public Offering (IPO) is a popular funding arrangement for FinTech companies that have grown to a certain size. An IPO is the initial sale of company shares on a public exchange, such as the London Stock Exchange. For example, in 2015, Worldpay (a payment processing business) listed on the London Stock Exchange (LSE) in a deal that represented the largest UK IPO of that year. The London Stock Exchange's Alternative Investment Market (AIM) caters specifically for small, growth-orientated companies and, recently, FreeAgent, (a provider of cloud-based accounting software) raised £10.7 million in its AIM IPO in 2016, having previously raised growth capital through equity crowdfunding.

A number of marketplace loan securitizations have been launched in the UK, where loans originated via marketplace lending platforms are packaged together and sold to investors as bonds. For example, in 2015, Funding Circle completed a £129 million securitization of loans to small and medium sized enterprises (SMEs) that had been originated through its online marketplace lending platform. Later on that year, Zopa completed a £150 million securitization of consumer loans originated on its platform.

FinTech companies have also started to access funding by issuing bonds to retail investors as a way of raising more competitive funding. For example, in July 2017 LendInvest issued an initial £50 million of retail bonds, which are tradeable on the LSE.

Convertible bonds/loan notes

A popular funding tool for fast-growing FinTech businesses is to issue convertible bonds or loan notes, which are essentially a hybrid between debt and equity. Convertible instruments begin as a loan accruing interest and are convertible into shares in the issuing company at prescribed prices in certain circumstances.

Incentives and reliefs

The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering 50% income tax relief for individuals who invest in the shares of qualifying startups, up to a maximum investment of £100,000 per annum. This scheme complements the Enterprise Investment Scheme (EIS), which offers a lower rate of income tax relief of 30% to investors in higher-risk small companies. It is worth noting that some financial activities, such as money lending or insurance are non-qualifying trading activities, and as such, EIS and SEIS may not be available for all FinTech companies.

In addition, research and development (R&D) tax credits are an incentive designed to encourage companies to invest in R&D. SME businesses (those with fewer than 500 employees, and either revenue less than €100 million or balance sheet assets less than €86 million) can benefit from up to 230% tax relief on their R&D expenditure.

The Patent Box Scheme enables companies to apply lower rate of Corporation Tax (10%) to profits earned from its patented inventions.

Finally, since 6 April 2017, payments of interest made by a UK borrower to a UK lender through a UK peer-to-peer platform are exempt from withholding tax provided that certain conditions are met. To avail the exemption, the credit provided by the lender to the borrowers needs to have been provided at the invitation of a regulated operator of an electronic system.

Early stage

Seed investment

Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital providers.

Crowdfunding

The crowdfunding sector may be appropriate for a FinTech business in the early stages. It involves members of the public investing in a business by pooling their resources through an intermediary platform, such as Crowdcube or Crowdfunder.

There are two main types of crowdfunding: equity and reward-based.

• Equity crowdfunding involves company shares being given in exchange for investment in the business.
• Reward-based crowdfunding provides investors with a tangible benefit, such as early access to a platform or application that the business is developing.

Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.

In the UAE, crowdfunding was not until recently provided for and those seeking to raise capital by such means would have had to work within the general financial regulatory framework in the UAE, including in relation to offers of securities. However, in August 2017 the Dubai Financial Services Authority (DFSA) launched its crowdfunding regulatory framework for loan and investment-based crowdfunding platforms, the first such framework among the Gulf Cooperation Council countries.

Accelerators

Both the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) have their own accelerators, as more fully described in FinTech products and uses – particular rules; performing financial services in or from the DIFC or the ADGM requires a license from the DFSA or the Financial Services Regulatory Authority (FSRA) respectively.

Venture capital and debt

Venture capital (VC) funding is a type of equity investment usually targeted at early stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending, given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.

Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund, examples of which include Santander InnoVentures and Citigroup's Citi Ventures. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.

An additional funding option is venture debt, which is typically structured as a three-year term loan (or series of loans), which is secured against a company's assets and includes an equity element allowing the debt provider to purchase shares in the company. However, venture debt providers will usually only invest into companies that have already received investment through VC.

Warehouse and platform funding

Warehouse financing may be suitable for FinTech companies which own a portfolio of assets. Funding is often provided by way of a loan from a small number of lenders to a special purpose vehicle (SPV). The loan is secured on the assets acquired by the SPV from the originator. The lenders will only fund a portion of the assets, with the remainder being financed by way of subordinated lending from the originator.

Some FinTech companies may see warehouse funding as a temporary form of financing to be followed by a larger capital markets transaction at a later date.

Another alternative form of funding is by way of peer-to-peer (P2P) lending platforms, which bring individual borrowers and lenders together without the involvement of traditional banks. Beehive was the first P2P lending platform to receive a license from the DFSA to operate in the DIFC.

Senior bank debt and capital markets funding

As in many jurisdictions, listings via equity capital markets or debt capital markets are an option only for those of a certain size (local securities laws present various hurdles). Other debt financing options may be possible but, at this stage, equity and VC investment is a more common funding course for FinTech developers/users.

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Incentives and reliefs

One of the biggest attractions for corporates wishing to setup in the UAE (whether offshore or in the free zones) is the fact that the UAE is a (near) tax-free jurisdiction. Setting up in onshore UAE is more difficult for international firms given the rules around local ownership; however, the financial free zones are specifically setup to incentivize international corporates. They also offer clients a 50-year guarantee of zero taxes on corporate income and profits, complemented by the UAE’s network of double taxation avoidance treaties.

Early stage

Seed investment

In the US, initial outside investment in FinTech businesses is usually provided by private placements of securities sold to persons with a preexisting substantive relationship to the company or its founders, such as sophisticated friends or family or persons with whom they have had prior business dealings. Seed funding may also be provided by early stage 'angel' investors or incubator or accelerator programs. Investments usually take the form of equity or instruments convertible into equity. Seed funding is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital (VC) investors.

Crowdfunding and ‘accredited investor crowdfunding’

In the US, the sale of securities via crowdfunding has been underused, primarily due to the costs of compliance. For example, it requires using a registered broker-dealer or a registered 'funding portal', thereby prohibiting direct sales. It also requires providing specified disclosures and complying with many other requirements, including a USD2,000 limitation on the amount from any investor and a USD1 million limitation on the amount that can be raised. This resulting cost of using the exemption, together with the perceived stature of the businesses resorting to this exemption and concerns that its use could limit future financing options or M&A transactions, has resulted in low uptake of crowdfunding in the US.

The recent advent of Initial Coin Offerings (ICOs), token generation events and other blockchain-enabled financing structures has resulted in increased use of a relatively new technique sometimes referred to as 'accredited investor crowdfunding'. In short, this involves using general solicitation to locate 'accredited investors' (as defined in Rule 501 of Regulation D), provided that sales only occur to those who the issuer has taken reasonable steps to verify are accredited investors. These steps generally involve reviewing independent documentation (not just self-certification by the investor), such as reviewing Forms W-2, tax returns, bank and brokerage statements, or confirmatory letters from investment advisors, broker-dealers, accountants, or lawyers. Other conditions apply, including that the securities sold are 'restricted securities' subject to resale limitations.

Venture capital and debt

VC funding is usually more suitable for FinTech companies that, while still early-stage, have more established businesses. VC investors usually acquire equity in the form of preferred stock, which may include preferences in payment on liquidation, dividends, voting, or other matters. Depending on the amount of investment, VC investors might also require special governance rights, such as the right to designate a director or to observe the board, or certain co-sale, first refusal, or preemptive rights. Many VC investors specialize in particular sectors such as FinTech and therefore can provide tailored business support to FinTech companies.

VC investors include VC funds, which are special funds organized for the purpose of private investing. They may also include corporate VC, where a corporation has formed a fund for deploying investment dollars or making strategic or research and development (R&D) investments.

An additional funding option is venture debt. For example, the lender might provide the company a three-year term loan secured against a company's assets or revenues. The loan may also include an equity component for the lender. Many venture debt providers only invest in companies that have already received VC investment.

Warehouse and platform funding

Warehouse financing is a primary means of financing portfolios of FinTech assets. These facilities are most often structured as a loan to a bankruptcy-remote special purpose vehicle that is a newly-formed subsidiary of the originator.

Senior bank debt and capital markets funding

Senior bank debt

Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.

Capital markets funding

When a company has grown to a sufficient size, an Initial Public Offering (IPO) may be a way to raise funds. Typically, an IPO will include listing the company’s shares on a national securities exchange, such as the New York Stock Exchange or Nasdaq. Financial and technology sector companies are staples of the US capital markets, consistently representing a meaningful portion of US IPOs. In the last 12 months, technology companies have represented approximately 20%, and financial services companies have represented about 11%, of US IPOs.

As described above, capital markets securitizations are also used by more mature originators as another source of liquidity.

Incentives and reliefs

To encourage early-stage investment in small, active businesses, section 1202 of the Internal Revenue Code (IRC) allows a non-corporate shareholder to exclude from gross income gain up to the greater of:

• USD10 million; or
• 10 times the adjusted basis of the investment that results from the sale or exchange of qualified small-business stock.

A qualifying small business must be a US C corporation whose aggregate gross assets immediately following the issuance of shares do not exceed USD50 million. In addition, the shareholder must have acquired the shares at their original issuance and then held them for at least five years.

A startup company may elect to deduct certain 'startup expenditures' incurred before the business is established over the 180-month period beginning with the month in which the active trade or business begins. A 'startup expenditure' generally means certain amounts paid or incurred in connection with either investigating or creating an active trade or business.

Taxpayers can also avail of R&D tax credits under section 41 of the IRC, for expenses stemming from qualifying research activities. The available credit ranges from 14%-to-20% of qualifying expenses over a fixed base amount. Certain companies unable to fully use the tax credit due to startup losses, may be eligible to choose to apply up to USD250,000 of the research credit against payroll tax liabilities.

Section 199A was newly enacted as part of the Tax Cuts and Jobs Act of 2017. Under this provision, owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a qualified business income (QBI) deduction for tax years beginning after 31 December 2017. Section 199A permits eligible taxpayers to deduct up to 20% of their QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts. Unless Congress decides to extend it, Section 199A will not apply to taxable years beginning after 31 December 2025.

Finally, many states have provided tax incentives to attract startup activity. These range from income tax credits to real property tax abatement for new office space.