Finance

Zopa gains unicorn status as SoftBank leads $300m funding round

British digital bank Zopa is now a billion-dollar company, gaining the coveted unicorn title after raising $300m from major Japanese technology investor SoftBank.

The world’s oldest peer-to-peer lender said it had secured the capital from SoftBank’s Vision Fund 2, with participation from Chimera Capital and existing investors IAG Silverstripe, Davidson Kempner, NorthZone and Augmentum Fintech.

The 19 October investment puts Zopa among the upper echelon of UK fintechs as it prepares to list its business in London, targeting a debut in the fourth quarter of 2022.

It comes as the UK government leads a charm offensive to ensure its homegrown fintech businesses choose London’s public markets over Wall Street, holding meetings with entrepreneurs and executives to convince them to consider the City over New York and other destinations such as Amsterdam in the wake of Brexit.

READ Brexit skills shortage crisis risks London handing its finance crown to rivals

Zopa’s funding is set to be announced on 19 October at an investor event hosted by Prime Minister Boris Johnson and attended by members of the Royal Family, aimed at attracting billions in foreign investment to Britain.

The latest funding injection has led Zopa to a valuation of $1bn, with the business set to report a monthly profit within the next 10 weeks, a person familiar with the matter told Financial News.

Zopa chief executive Jaidev Janardana said the round will likely be the firm’s last before it goes public, with the capital to be put towards meeting requirements for increasing its balance sheet rather than business costs.

“I want to show a consistent track record of profitability before we go public,” Janardana told FN in an interview last week. “What this capital does is it allows us to accelerate our trajectory — but it also means we can pick and choose our time on when to go in, because this gives us a lot more runway.”

Zopa began life in 2005 as a peer-to-peer lender, inviting consumers to put up their cash as loans to businesses. The firm has lent £6bn to date and gained a banking licence last year, expanding into credit cards and fixed-term savings accounts.

The UK’s top digital banks are chasing profits as they reach maturity, after years of operating losses funded by free-flowing venture capital cash. Some such as Starling Bank have targeted profitability as a priority, while others such as Revolut have said turning a profit is a matter of choice at the expense of growth.

READ Fintech pays ‘heavy price’ for profit failures, says UK startup boss

Zopa reported an annual loss of £41m in the year to December, up from £15m in 2019 as rising costs associated with becoming a bank forced it to seek additional cash from investors.

“A lot of fintechs say, ‘yes I can be profitable’, and then you look at the unit economics. It’s very hard to see how you would make money,” Janardana said. “It’s those things that I think are more questionable.”

Zopa said its plan to hit profitability within 10 weeks would make it one of the fastest digital banks in the UK to do so, 18 months on from acquiring its banking licence.

Like fintech peers Monzo and Revolut, he said Zopa is considering an expansion into buy now, pay later financing for bigger ticket items within the next six to eight months.

Meanwhile, the funding landscape for fintech companies is set to change in the coming months, an 18 October report warned, as venture capital and private equity businesses focus on getting mature companies to market.

A war on talent, rising interest rates, and delayed public listings are forcing larger companies to rely on private cash for longer, the report’s author Finch Capital said, causing a dearth of funding for younger innovators in 2022.

READ Fintech frenzy to stall as talent war and Europe’s IPO slowdown hurts startups

Janardana said the cycle of fintech firms raising floods of cash with ease “is probably coming to an end”.

“We are at a place where that funding will be more available to businesses that can show that they can actually generate a profit — compared to businesses historically, where I think funding has been made available when [their models] are like, ‘we’ll attract all our customers and we’ll figure out how we monetise them later’,” he said.

To contact the author of this story with feedback or news, email Emily Nicolle

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