British based banking and digital payments group, Revolut is trying to raise $1.5 billion (£1.2bn) from its investors as part of its aim to become one of the most highly-prized fintech companies in the world. According to Sky News, the company has hired the investment bank JP Morgan for orchestrating two things; issuing a convertible loan worth $1 billion (£790m) in the coming months and raising equity of $500 million (£395m). If the company is successful in doing so, it will be catapulted into the ranks of technology companies that have managed to secure individual funding rounds of more than $1 billion (£790m).
Some sources revealed over the weekend that the company was going for this capital raising in order to reach a valuation of somewhere between $5 billion (£3.9bn) and $10 billion (£7.9bn). Revolut is currently led by Nik Storonsky, founder and chief executive, and with this move, his company would become the most valuable fintech player in all over Europe. This dual-funding bid comes only a few weeks after the company unveiled a global deal that it has signed with payment giant, Visa. With this deal, the company will be able to expand its operations to 24 countries.
Under this new deal with Visa, Mr. Storonsky’s company will be issuing cards branded by Visa in markets including Singapore, Canada, the US and Japan. However, it is unclear for now if New-York listed Visa would itself be interested in participating in the latest fundraising by Revolut. As per insiders, Revolut was planning to raise the new loan on the basis that it would be converted into shares if the company were to get a banking license in the United States. If it is successful in securing the full amount of $1.5 billion from investors, it would mean that the total amount the fintech group has raised during its five years of existence would reach $2 billion. This is a significant sum for a British-based tech firm.
Additional details of the fundraising are unlikely to be revealed for another few months because Revolut would certainly want to unveil their new chairman first, who is none other than the veteran fund management executive, Martin Gilbert. Apart from chairman, the company has also lined up a non-executive director, who is Michael Sherwood. He is one of the most prominent bank executives in the city and is the former boss of Goldman Sachs in Europe. Revolut is also making changes to its executive ranks to shake things up.
The company is hiring a new finance chief who is currently a senior executive at Metro Bank. Revolut has forced to make this management overhaul because recently, there have been challenges made where its reputation is concerned. Some of these include alleged links of the company with the Kremlin, something it continues to deny vehemently. Revolut has also been targeted with questions regarding the quality of its compliance functions. This happened after a newspaper article made claims that an automated transfer system had been ‘switched off’ by the company and this led to a row.
This particular system is designed to prevent Revolut’s money transfer system from being used for violating international sanctions. The company continuously insisted that they were simply testing the new system, along with existing controls. Less than five years ago, the company had a standing start and now, it has a total of seven million customers all over Europe and almost half of them are in the United Kingdom. Revolut operates in almost 32 countries and its number will now increase to 55, thanks to the Visa partnership. According to the statistics provided by Revolut, it opens about 12,000 accounts every day, which is equal to four million every year.
Other than that, the company has gotten financial backing from some of the most prominent names in the venture capital industry, including Index Ventures, DST Global and Balderton Capital. Revolut’s move to target equity and debt in excess of £1 billion comes amidst a race amongst banking startups to get their hands on more capital for regulatory and expansion purposes. £113 million fundraising was recently announced by Monzo, which is chaired by Gary Hoffman, the former chief of Northern Rock. With this fundraising, Monzo’s valuation would increase to £2 billion.
Another digital player called Zopa is also speaking to investors whereas another £50 million were raised by Atom Bank during the summer. Earlier this year, Revolut’s CEO stated that he wanted the company to be worth $20 billion (£15.8bn) and $40 billion (£31.6bn) before they would contemplating listing on the stock market, which is probably going to be a few years away. Despite the fact that the company has a multibillion pound valuation, Revolut is still making a loss, but this hardly makes it an anomaly amongst notable technology companies.
Nonetheless, investors are now demonstrating a lot of skepticism when it comes to pathways of profits for tech firms. Just recently, WeWork’s owner was forced to abandon their New York flotation amidst concerns of governance and financing. Earlier this month, Revolut had published its results in which it stated that the company made a pre-tax loss of £33m in 2018 as compared to £15 million in the year before. However, there was a more than fourfold increase in the revenue of the company as it increased from £13m to £58m and the company said that it was on track to triple its revenues this year as well, which is certainly a positive sign for the future of the company.
But, more troubles are coming as recently all faster-growing firms that fall under the auspices of the Bank of England’s Prudential Regulation Authority were challenged to adopt more rigorous stress testing. Revolut did not comment regarding the matter. The UK-based digital payments firm could essentially achieve its goal and become one of the fintech elite if it is able to pull off the huge fundraising it has planned. It could enable the company to reach its goal of being listed faster than anticipated.
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