British digital bank Monzo is raising a new round of cash from investors at an almost 40 per cent discount to its previous fundraising, highlighting the pressure the coronavirus crisis is putting on private tech company valuations, according to Financial Times.
The bank is close to agreeing a deal that will value it at around £1.25bn, compared with the more than £2bn valuation secured at its most recent funding round last June, according to several people familiar with the negotiations.
The sharp drop highlights how the pandemic is challenging unlisted tech valuations as growth slows and venture capital funds become more cautious about backing lossmaking companies.
Monzo plans to raise between £70m and £80m to see it through the coronavirus disruption. This would secure its cash position into the second half of 2021 when it will have moved closer to profitability.
The deal is expected to close within the next month. One person involved in the discussions cautioned that the final value and amount raised had not been confirmed. Monzo declined to comment.
German digital bank N26, which pulled out of the UK after struggling to compete with local start-ups such as Monzo, managed to maintain its $3.5bn valuation when it raised money from existing investors earlier this month. However a growing number of technology start-ups have been forced to accept reduced valuations in recent weeks or been unable to complete deals altogether.
Monzo had hoped to raise money from new investors earlier in the year but the pandemic took hold in March. The majority of its new funding will now be provided by existing investors. Its key backers include US venture capital groups Accel, Y Combinator Continuity and Goodwater Capital, along with UK-based Passion Capital.
The expected 40 per cent decline in Monzo’s valuation compares with a 40 per cent drop in the FTSE 350 Banks index since the start of the year, though start-up banks such as Monzo have faced different challenges to their publicly listed peers.
Monzo only recently started building its loanbook, so it faces relatively less risk from customer defaults. However lockdowns and, notably, a decline in international travel have hit revenues, reflecting a reduction in customer card payments that has weighed on transaction fees.
In March, Tom Blomfield, Monzo’s chief executive, told staff that he would forgo his salary for the next 12 months. The bank has also furloughed some employees and closed a customer service office in the US to cut costs. However it has pushed ahead with growth plans such as applying for a US banking licence and launching a business banking service. A person close to the company said it was still signing up more than 50,000 new accounts a month.
Banking 4.0 – „how was the experience for you”
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