London's digital bank Monzo has closed a much-awaited £60m raise at a £1.25bn valuation — a 40% drop from its previous round.
The news, first reported by Business Insider, comes after months of funding delays for the bank and speculation about a down round. Several VCs told Sifted earlier this year that Monzo and its peers had been struggling with “challenger bank fatigue” among wary investors, delaying the raise even before the UK lockdown took hold.
There are two new known investors in the most recent round — Switzerland's Reference Capital and Vanderbilt University — while the remaining funds were made up by Monzo's existing backers, including Y Combinator, Accel, Thrive Capital and Passion Capital.
Monzo confirmed the news to Sifted, but would not disclose what proportion of the funds came from non-existing investors.
The fundraise is likely to have provided a top-up to the bank's balance sheet, which now stands at £175m in liquid capital (as a licensed bank, it is required to hold at least 8% of its risk-weighted assets in liquid cash).
A smaller, second tranche of funding is now expected to close in the coming months, to further fuel Monzo's growth beyond its existing 4m users. Indeed, the company was originally expected to raise $130m.
There are no expected changes to the board.
Down but not out
Monzo's dampened valuation has raised eyebrows in the industry, given Monzo's position as the golden child of UK fintech. At its previous valuation in June 2019, Monzo became UK's second most valuable startup at £2bn.
However, the VCs that Sifted spoke to argued that down rounds weren’t a reliable indicator of a company’s future.
One said: “It’s tough on teams, it’s tough on morale. But we’ve seen companies do down or flat rounds that go on to do great things. Uber famously had a round that was a flat round, and people were like ‘oh no, this is the end of Uber’. Looking back on it, the folks that participated in that round did very well.”
The same person added: “It’s not necessarily a death pill for these companies, it’s a rationalisation and an adjustment and the broader tech world has shown that it’s recoverable.”
The raise has also taken place within the context of the coronavirus, which has diluted investor appetite, prompting Monzo to lay off over 80 staff and spurring a dip in user signups.