Venture Capital: Monzo, The Poster Child of UK Fintech, Raises £60M in Down Round

June 17, 2020 | News, Venture Capital
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The latest funding round valued the challenger bank at £1.25 billion, 40% lower than the previous one.

Online challenger bank Monzo has raised £60 million at a valuation of £1.25 billion, a 40% down round that has brought the industry face-to-face with the harsh fallout from the virus outbreak. The neo bank laid off 80 employees earlier this month, raising speculation about a valuation cut in the latest funding. However, the bank faced some inertia from investors suffering “challenger bank fatigue” even before the lockdowns. (Sifted)

New investors

The latest round saw investment by new investors Vanderbilt University and Swiss fund Reference Capital. Existing investors including Y Combinator, General Catalyst, Accel, Stripe, Thrive Capital, Orange Ventures, Goodwater Capital, and Passion Capital also participated.

In June 2019, Monzo was valued at £2 billion and ranked as the UK’s second most valuable startup. The latest round was under negotiation for some time, and according to one view, the primary cause of the down round was poor timing.

Regulatory compliance with the requirement to hold at least 8% of its risk-weighted assets in cash may also have forced Monzo to accept a lower valuation for much-needed funds.

Monzo: troubles all around

The virus outbreak and the resulting economic turmoil forced the bank to lay-off employees in the US and shut its Las Vegas office. Apart from the 80 heads laid-off in the UK, another 300 were furloughed.

Meanwhile, Monzo suffered a leadership churn.

Co-founder Tom Blomfield stepped down as CEO to take up the newly created role of president. TS Anil, previously of Visa, will replace Blomfield, who has deferred his salary by a year due to the financial pressures from the pandemic.

Former Deliveroo executive Mike Hudack joined Monzo as chief product officer earlier this year. This week, Sujata Bhatia, ex- American Express, took over as chief operating officer.

Monzo continues to be unprofitable, even though it has built up a user base of 4 million. Customers have reduced card spend amidst the economic uncertainty from the virus, adversely affecting Monzo’s revenue from interchange fees.

A down round is not the end of the world

An unnamed VC told Sifted that on the brighter side, existing investors, though understandably miffed with a down round, still participated in the new fundraise – a sign of their continued confidence in Monzo’s business prospects.

“It happens, we all take those hits once in a while.”

Related Story:  Challenger bank Monzo boosts valuation north of £2B after funding round

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