What are neobanks worth? That’s a question on many people’s minds, especially the investors and employees of the richly valued fintechs that have been waiting for IPOs to make a comeback.
Overall, neobanks mostly seem to be doing OK, especially those across the pond. But new data from a venture capital firm indicates that at least some investors are still sorting out how to value them: U.K.-based Revolut saw its valuation being reduced earlier this year, and the company is once again in the headlines for reasons that it won’t like. One of Revolut’s backers, Molten Ventures recently reported its own financial performance and the data indicates that Revolut’s valuation is yet again being reexamined.
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Formerly known as Draper Esprit, Molten Ventures is listed on the London Stock Exchange and shares more information about its holdings than most VC firms thanks to its corporate structure. Importantly, this gives us good visibility into its portfolio companies’ changing worth as well. Molten notes that its fair market values for portfolio companies are set by its Audit, Risk and Valuations Committee and are sensitive to public comps.
The latest from Molten contains a wealth of useful data that we’ll dive deeper into in the coming days, but today, let’s focus on Revolut and try to sort the company more neatly with its peers.
Revolut by the numbers
As far as we’re aware, Revolut’s last major funding round was a massive $800 million Series E that afforded it a post-money valuation of $33 billion, per Crunchbase data. That round marked the neobank as not only one of the most valuable fintech startups in the world, but one of the most richly valued private tech companies, period.
As we mentioned above, one of Revolut’s investors, Schroders, cut its valuation mark for the company by a massive 46% earlier this year. Given how much public markets have changed their minds on the value of public fintech companies since 2021, the reevaluation of Revolut’s worth was notable but not a massive surprise.
Now, Molten. The venture group indicated in its results that the fair value of its investment in Revolut was £91.3 million at the end of March 2022. After accounting for currency fluctuations and a shift in the company’s fair value, Molten now values its Revolut stake at £54.5 million, or about 40% less.
In one of its filings, Molten noted that an analysis of its portfolio’s performance did not include Revolut, due to “limited information rights.” Elsewhere in its documents, we spied a bit of publicly available information concerning Revolut that was similar to what we reported on previously. In short, we are not going to glean new information from Molten apart from its new fair value for Revolut.
Revolut declined to comment.
In raw terms, a 40% decline in value would peg Revolut’s worth at just under $20 billion. If we strip out the currency-related adjustments, Molten’s reevaluation of Revolut comes out to a sharper 44%.
That is a lot of money and it’s still a big win for Molten, which invested £7 million and is sitting on £55 million worth of Revolut equity even after the repricing.
What’s going on?
The decline of Revolut’s valuation may be more macro-driven — its public peers are also worth less now than they were previously — than due to the neobank’s own performance. To that point, TechCrunch+ has written extensively in recent weeks about the salubrious impact of rising interest rates on the revenue and profitability of a number of financial technology companies. Revolut could certainly be enjoying similar tailwinds.
Revolut already has a full banking license in Lithuania. As such, it is allowed to offer cross-border banking services to business customers in the European Economic Area. The company doesn’t have a similar license in the U.K. and it is therefore locked out of important money-making avenues — hence why it applied for a license there in 2021. Per Wired: “Getting the license would let it expand further, into insured deposits and lucrative lending products like mortgages and credit cards — in short, to behave like a real bank.”
In other words, there is a direct connection between Revolut’s prospects of getting a U.K. license and its bottom line. The problem is that Revolut’s banking license application may be refused by U.K. regulators unless it simplifies its ownership structure.
Changing the ownership structure of a neobank, however, is not a straightforward process. SoftBank reportedly demanded compensation for giving up its priority class of shares in the company. We don’t know how much this influenced Molten’s decision to reprice its shares compared to broader considerations, but it likely didn’t help.
However, there are still reasons to remain optimistic about Revolut’s chances of turning things around. Chief among them is the fact that the neobank reached profitability in 2021. Molten also highlighted that in 2022, the company “expanded into new locations across the Americas, Europe and Asia.”
This expansion might have a negative impact on Revolut’s profitability in the short term (which investors may not like right now), but in the long run, the prospect of additional revenue makes its U.K. woes slightly less important. Whether that’s enough for its valuation to recover remains to be seen.