Regulatory Sandboxes and Fintech Funding : Evidence from the UK

Over 50 countries have introduced regulatory sandboxes to foster financial innovation. This paper conducts the first evaluation of their ability to improve fintechs' access to capital. Exploiting the staggered introduction of the UK sandbox, we compare firms in earlier to those in later cohorts. Firms entering the sandbox see an increase of 15% in capital raised post-entry; their probability of raising capital increases by 50%. We present evidence that the sandbox facilitates access to capital by reducing asymmetric information and regulatory costs. Controlling for time-varying confounding factors at the firm- or investor-level through fixed effects does not affect our findings