Following its most recent funding round last June, Monzo is raising a new round of cash from investors at an almost 40 per cent. discount to its previous fundraising, highlighting the pressure the coronavirus crisis is putting on private tech company valuations. The bank is close to agreeing a deal that will value it at around £1.25bn, compared with the more than £2bn valuation secured in the previous round.
The decline in valuation unsurprisingly follows a plunge in consumer spending, use of card payments and international travel while the world has been under lockdown. The sharp decline in Monzo’s valuation is also consistent with the plummet in the FTSE 350 Banks index, which has dropped by 40% since the start of the year.
The steep drop in Monzo’s valuation highlights the current difficulties being faced by unlisted tech companies in need of cash during the current pandemic. The immediate impact of the crisis on business and consumer activity has required VC funds to shift focus to the immediate cash needs of certain of their existing portfolio companies. In addition, the uncertainty in economic outlook and the longer-term effects of Covid-19 on certain parts of the economy is requiring a re-assessment of some of the investment opportunities and delaying investment decisions. The effect of this are evidenced by the fact that March was the lowest month for fundraising in the fintech sector in the last three years.
Whilst the long term effects of the Covid-19 pandemic remain unclear, it is likely that funding terms in many parts of the start-up world will remain more investor-friendly in the coming months.
The sharp drop highlights how the pandemic is challenging unlisted tech valuations as growth slows and venture capital funds become more cautious about backing lossmaking companies.