Revolut, the London-based digital banking startup founded just six years ago by Russian-born founder Nikolai Storonsky, has raised $800 million from investors who value the company at $33 billion, the company announced Thursday.
Revolut has become the most expensive fintech startup in the U.K. Its 37-year-old founder Nick Storonski, who owns more than 20 percent of the company, is valued at $7.1 billion, up from $1.1 billion in March 2020. A Revolut spokesman did not respond to a request for comment on Storonsky’s condition.
Softbank’s Vision Fund 2 led the funding round with Tiger Global. In a statement, Storonsky called the two companies’ investments in support of Revolut’s mission to create a “global financial super app” that would allow customers to “manage all of their financial needs through a single platform.” Adding, “We want our global app to offer customers 10 times better value and 10 times better service and security than they can get anywhere else.”
Revolut’s value has risen 500% since it hit the $5.5 billion mark in February 2020. While customer growth continues, losses for the year ended December 2020 rose 57% to $217 million on revenues of $307 million, compared to losses of $148 million in 2019 on revenues of $229 million. Revolut continues to burn through cash in pursuit of customer growth.
Karol Niewiadomski, a senior investor at SoftBank, said in a statement, “The pace of Revolut’s innovation has redefined the role of financial services, putting [Revolut] at the forefront of the nascent European nonbanking sector. The company’s rapidly growing user base reflects the steady demand for Revolut’s expanding suite of services.”
Revolut says it plans to use the new financing to support the expansion of its offering to U.S. customers and enter Indian and other international markets.
Rishi Sunak, chancellor of the U.K. Treasury – the country’s second most senior politician – was also quoted in Revolut’s statement, saying: “It’s great news that Revolut has raised another $800 million and plans to expand further.” And he added: “We want to see more UK fintech success stories like Revolut.”
Growth and loss
Revolut was the first of the so-called U.K. neobanks to attract a Forbes billionaire in founder Storonsky last year. Thursday’s announcement puts him on par with the founders of Stripe, Klarna and Checkout.com as fintech billionaires whose fortunes have grown since the pandemic forced a global lockout in March 2020.
The growth story that has attracted the likes of SoftBank and Tiger Global to Revolut is very enticing. Between 2019 and 2020, Revolut’s retail banking users grew from 10 million to 14.5 million, and the number of business customers more than doubled from 220,000 to 500,000. In 2020, Revolut obtained a banking license in Lithuania and then in Poland, giving the company the ability to “passport” the license and offer banking services more widely throughout Europe. In the U.K., Revolut offers current accounts and debit cards through an electronic money license, while its application for a full banking license (overdrafts, loans, etc.) is pending approval.
But a major problem for Revolut and its management team has been staff costs. Total personnel costs rose from $82 million in 2019 to $235 million in 2020. Personnel costs accounted for 74% of revenue in 2020. Revolut knows its weakness. During a general meeting of shareholders in April 2020, Revolut announced to employees that it had lost “operating leverage” and had become “fat and weak” in the process.
Robert Le, a senior new technology analyst at PitchBook, told Forbes that among venture capital investors, “the growth versus profit mentality” has “fluctuated back and forth over the last few years.” Adding, “Investors are now valuing growth much higher than profitability.”
Although Revolut’s new $33 billion valuation is “astronomically high relative to revenue,” Le adds, the analyst is confident the company can monetize its “massive” customer base, which has outgrown, he says, “the first neobank model — providing free deposit accounts” — as a loss leader in fintech. The next step for Revolut, Le said, will be to move into more lucrative financial services offerings such as mortgages, turning more customers into primary account holders who actually transfer their paychecks into Revolut accounts as they mature. Obtaining banking licenses in the U.S. and Singapore will be another important step, Le adds.
But funding from investors keeps coming in, which is part of a global trend. Earlier this month, Crunchbase reported that global venture capital funding reached $288 billion in the first half of 2021, an increase of just under $110 billion from the previous half-year (also a record), which was set in the second half of 2020.
The surge in funding and interest in fintech has led to a number of new European fintech billionaires, including Wise co-founders Christo Kärmann and Taavet Hinrikus, Checkout.com founder Guillaume Pusaz and Klarna co-founders Sebastian Semiatkowski and Viktor Jakobsson.
