UK Edition
Revolut has become Britain's most valuable fintech firm of all time after an $800m (£578m) fundraising gave it a £24bn price tag - making it worth more than NatWest.
Chief executive Nikolay Storonsky is now a multi-billionaire as his 24pc stake in the company is now worth $7.9bn after Revolut's latest raise.
The digital banking business, which now has 16m customers and is just six years old, plans to use the latest fundraising to fuel its global expansion to regions including US, China and India.
New backers of the company include Japanese conglomerate SoftBank’s $30bn second Vision Fund and Tiger Global Management, the prolific New York technology start-up backer.
The Chancellor called Revolut’s raise “great news” and said its expansion will create more jobs in the UK.
Rishi Sunak said: “We want to see even more great British fintech success stories like Revolut, which is why I’ve published a roadmap setting out how we will ensure the UK sector remains competitive, forward-looking, and dynamic."
Mr Storonsky told The Telegraph in 2019 that he had held investment talks with SoftBank that year: “They wanted to invest straight away, they asked me would I take money. I said no.”
Revolut was reportedly targeting a valuation between $10bn and $15bn at the start of 2021 but has benefitted from a recent rise in investor interest in banking technology businesses.
The UK’s financial technology sector continues to attract investors from around the world, with businesses such as share trading company Freetrade, insurance providers including Zego and anti-money laundering start-up ComplyAdvantage offering fresh opportunities for venture capitalists.
Research published by London & Partners earlier this month found that London has already hit a record level of fintech funding in the first half of 2021, with $5.3bn invested over the past six months.
Mr Storonsky, a 36-year-old former Lehman Brothers and Credit Suisse employee who was a state champion swimmer in his native Russia, started the business in London in 2015.
The Revolut founder's $7.9bn paper fortune from the fundraising means he joins the multibillionaire club alongside Amazon chairman Jeff Bezos and Tesla boss Elon Musk who Mr Storonsky has described as his leadership hero.
Revolut was initially headquartered in the Level39 Canary Wharf start-up scheme before moving to its own office in the area.
Ukrainian Vladyslav Yatsenko, the company’s other co-founder and the head of its engineering team, previously worked at UBS, Deutsche Bank and Credit Suisse.
Mr Storonsky’s Russian family caused controversy in Lithuania after the country gave the business a European banking licence in 2018.
Politicians in the country voted to investigate Mr Storonsky’s father's employment in a division of Gazprom in case it presented Kremlin influence over the business. The country eventually concluded there was no risk. Mr Storonsky called the controversy over his father's job “a bit funny”.
Revolut has faced criticism over its work culture after reports claimed employees were asked to work long hours and weekends along with allegations that job applicants were required to attract customers to the business.
Mr Storonsky wrote in 2019: "Our internal working culture has been evolving as fast as our business, and we have come a long way from where we were before.
"When I look back at some of our past mistakes, I'm certainly not proud of them, but I am proud of what we have learned along the way, and the direction that we're now heading in."
The raise positions Revolut as the UK’s largest digital challenger bank, placing it ahead of rivals Monzo and Starling Bank that also offer app-based banking services.
Buy now, pay later lending business Klarna remains Europe’s most valuable financial technology start-up after reaching a $45bn (£32bn) valuation in a $639m funding round in June that was also backed by SoftBank.
Klarna’s major fundraising was reportedly a factor in Revolut’s ability to raise money at a higher valuation as investors warm to European banking businesses.
Revolut’s main banking app rival has been Monzo, which was founded in the same year and initially offered the same service as Revolut.
Mr Storonsky’s business has since expanded to include cryptocurrency and share trading to hook in more customers, while Monzo has focused on preparing for an expansion to the US.
Revolut’s latest accounts for 2020 show that losses doubled to £201m despite a rise in interest for its cryptocurrency trading service. Revenues at Revolut rose 34pc to £222m in the same period.
Darren Westlake, the chief executive of crowdfunding site Crowdcube, said: "This is hugely exciting for the investors that backed Revolut through Crowdcube, in their first crowdfunding campaign in 2016; over 100 of which now have shares worth over £1m, which represents a 600pc increase in the value of their stake."
'We didn't need to raise any money'
“People who are afraid of hours are almost never successful”, according to Revolut’s unorthodox description of its company culture.
It is a philosophy that Nikolay Storonsky, the founder of the banking and payments app, has carried over from his days as a trader at Lehman Brothers and Credit Suisse.
It has also been credited with making the 36-year-old a multi-billionaire after Revolut secured a $800m (£577m) funding round on Thursday, raising its valuation to £24bn.
The investment makes Revolut the most valuable privately held technology company that the UK has ever seen, giving it a larger valuation than chip designer Arm and payments business Worldpay had before their sales. The six-year-old business is now also worth more than NatWest despite its operating losses doubling to £201m in last year. A year ago the group’s valuation was around £4bn.
Chancellor Rishi Sunak welcomed the fundraising, saying: “We want to see even more great British Fintech success stories like Revolut.”
Martin Gilbert, Revolut’s chairman and the fund manager behind Aberdeen Asset Management, says the deal was about Revolut’s potential, not its current business.
“Investors are interested in the future of financial services and clearly our investors think Revolut could be one of the big winners in the future.”
“We didn’t need to raise any money. But the opportunity came along to raise a significant amount which will help us grow the business in the future. The focus is on growing globally in places like India, Australia and the US.”
But its sky-high valuation has raised more than a few eyebrows, particularly in the context of the company’s growing losses, minimal lending revenue, and the fact the start-up was targeting a lower valuation of $15bn as recently as April.
“There’s no denying that the valuation for Revolut is incredibly high, especially when you consider it was valued at £4bn just over a year ago and it is still loss-making,” says Sarah Kocianski, the head of competitor strategy at financial technology consultancy 11:FS.
“However, there is a lot of money around looking for a home at the moment, and that’s helping drive up valuations beyond what you might have expected to see previously.”
John Cronin, a banking analyst at Goodbody, called it a “staggering valuation for a loss-making business.”
“It will be interesting to track its progress and to see if this valuation can be sustained (or built on) if the business decides to embark on an IPO in due course.”
The company’s range of products include bank accounts, international money transfers, cryptocurrency and stock trading as well as bill paying and budgeting tools.
Revolut’s lending facility is small, standing at just £1.4m at the end of 2020 even as revenues rose to £222m. But the potential of turning its 16m users into lending customers is likely to have won over investors.
Many have faith in Storonsky’s ability to achieve this. The Russian-born entrepreneur has built up a reputation in the industry for a hard-driving approach to leadership.
“I noticed that several team leaders are significantly below targets and still do not work on weekends to catch up,” Storonsky wrote in an internal message to employees in 2018. He later admitted that “we haven’t always got things right” and referred to Revolut’s culture at the time as a “mistake”. The former state champion swimmer’s approach shows every sign of having paid off, however.
“You can see the potential gearing in the business if we could lend even a small portion of our balance sheet out,” Gilbert said last month as the company published its 2020 accounts.
Revolut originated from 2015’s financial technology boom period in London, which also led to the rise of rivals Monzo and Starling Bank.
Within a matter of months, these three companies all courted major investors, forcing British venture capitalists to pick sides. Prominent London funds Index Ventures and Balderton Capital sided with Revolut, handing it £70m in funding in its first two years.
Storonsky used his funding war chest to embark upon breakneck international expansion, launching Revolut across Europe at a time when rivals Monzo and Starling remained in the UK.
“What really drives the valuation is the scale of the ambition. You see a lot of people doing just retail, just current accounts in just one country,” says Mikko Salovaara, Revolut’s chief financial officer.
But with that ambition came controversy, with politicians in Lithuania raising concerns about Storonsky’s family in Russia and the possibility of Kremlin links. A subsequent investigation found no cause for alarm.
Revolut’s current expansion to India and China, along with an application filed in March for a US banking licence, gives investors hope that the business still has plenty of room to grow.
The latest funding round was led by SoftBank and Tiger Global, two prolific technology investors that have gained renown for the unrelenting pace of their deals.
SoftBank has been known to persuade founders to accept more funding than they requested in the belief that larger cheques equal higher returns.
Revolut now has significant funding to resume the pace of its expansion that it kept up before the pandemic. The company applied for a full UK banking licence in January, which would clear the way to a major expansion of its lending business. Launching a buy now, pay later service could also bulk up its lending revenue. Sweden’s Klarna, another SoftBank investment, remains Europe’s most valuable financial technology start-up with a $46bn valuation.
Gilbert says Revolut has “no immediate plans” to launch its own buy now, pay later service but stops short of ruling it out. “It’s the same with an IPO,” Gilbert says. “No immediate plans for an IPO either. I think the strategy is going to be just focus on what we’re doing and try to expand that geographically.”
Revolut’s next battle will be to bulk up its lending business and to reach profitability, a challenge that Salovaara is optimistic about. “Profitability is not an issue,” he says.