UK stock brokerage app Freetrade has raised £30m through a loan deal in an effort to shore up its finances without having to attach a new valuation to the company, at a time when he expects startups to have a hard time raising funds in a bearish market.
The UK fintech achieved a £650m valuation after a crowdfunding round in November, double the value it posted at the beginning of last year. The investment app has this year added £30m to its balance sheet through a loan, which will then be converted into equity.
CEO Adam Dodds said the November crowdfunding and valuation had come at what was “objectively the peak of the public market. The world has changed.”
For the new fundraiser, he said, “We didn’t set the price of the round on purpose. By making a convertible loan note, you remove it from the equation. They are choppy markets. Focusing on a valuation right now might not be that helpful.”
The move comes as the valuations that stock market investors are prepared to give to brokers have plummeted, as stock markets deteriorate and the Covid-19 retail wave dries up. Shares of US neo-broker Robinhood have fallen 44 percent since January, while UK-listed brokers Hargreaves Lansdown and AJ Bell are down more than 30 percent.
Klarna, the Swedish buy-now-pay-later startup, could cut as much as a third of its $46 billion valuation as it tries to raise up to $1 billion in new funding, according to the Wall Street Journal.
The sell-off of high-growth tech companies, triggered by the change in central bank policy, also signals a tougher environment for startups to raise funds and match the valuations they attracted in recent years, when investors were more Optimistic about technology.
Dodds argues that public tech companies have been “oversold” but said the cut in stock market valuations would “trickle down” to private companies.
“When market conditions come like this, the wise thing to do is go and raise some more money,” he said, allowing Freetrade to continue to invest in its growth. Still, he expects hiring to decline both at the company and across the industry.
“I think ambient music is not spend before you grow up,” Dodds said. “We are going to get through these ups and downs. That is the goal of raising these funds.”
Existing investors from Freetrade Left Lane Capital, Molten Ventures and L Catterton joined Israeli financial group The Phoenix and Capricorn Capital Group in extending the loan.
The company made a pre-tax loss of £18m in the year to September 2021, according to its annual results, a copy of which was seen by the FT. Revenue rose to more than £12m, from less than £2m the previous year, as the Covid-19 boom in retail helped Freetrade double its client base and triple trading volumes.
Freetrade said the losses came as it invested heavily in its app development and increased its presence in Canada, Australia and Sweden while planning international expansion.