Freetrade, the UK stock brokerage app, has raised £30mn through a loan agreement in an effort to shore up its finances without having to attach a new valuation to the company, at a time when start-ups are expected to struggle to raise funds in a downbeat market.
The UK fintech achieved a £650mn valuation after a round of crowdfunding in November, double the value it posted earlier last year. The investment app has this year added £30mn to its balance sheet through a loan, which will later convert into equity.
Adam Dodds, chief executive, said the crowdfunding and November valuation had come at what was “objectively the peak of the public market. The world has changed”.
For the fresh fundraising, he said: “We didn’t price the round on purpose. By doing a convertible loan note, you take that out of the equation. It’s choppy markets. To zero in on a valuation at this point is maybe not that helpful.”
The move comes as the valuations investors in the stock market are prepared to attach to brokers have plummeted, as equity markets turn sour and the Covid-19 wave of retail trading dries up. Shares in US neobroker Robinhood have fallen 44 per cent since January, while UK-listed brokers Hargreaves Lansdown and AJ Bell have dropped more than 30 per cent.
Swedish buy-now-pay-later start-up Klarna could shave up to a third from its $46bn valuation as it tries to raise up to $1bn in fresh funding, according to the Wall Street Journal.
The sell-off in high-growth tech companies, triggered by changing central bank policy, also signals a more difficult environment for start-ups to raise funds and match the valuations they attracted in recent years, when investors were more upbeat about tech.
Dodds argues that public tech companies have been “oversold” but said the cut to stock market valuations would “filter down” to private companies.
“When market conditions come like this, the prudent thing to do is go and raise some more money,” he said, which will allow Freetrade to continue to invest in its growth. Still, he expects hiring to slow both at the company and across the industry.
“I think the mood music is not to be spending ahead of your growth,” Dodds said. “We’re going to get through these ups and downs. That’s the point of raising these funds.”
Freetrade’s existing investors 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 £18mn in the year to September 2021, according to its annual results, a copy of which was seen by the FT. Revenues increased to more than £12mn, from less than £2mn the year before, as the Covid-19 boom in retail trading contributed to Freetrade doubling its client base and tripling trading volumes.
Freetrade said the losses came as it invested heavily in developing its app and growing its presence in Canada, Australia and Sweden as it plots an international expansion.