Fintech Freetrade struggled to find new backers at hoped-for valuation

UK stock trading app Freetrade failed to raise the fresh investment it was seeking at a higher valuation earlier this year, leaving it to turn to current investors for funding in another sign of the crisis that is gripping start-ups.

Chief executive Adam Dodds said in May that the fintech had opted not to seek a new valuation when it secured £30mn in a convertible loan, largely from existing backers.

However, months earlier Freetrade had signed term sheets with new investors for a funding round at a £700mn valuation, according to a copy of an investor letter seen by the FT. 

The deal was scrapped in January as tech stocks plunged, making investors wary of highly valued tech start-ups.

“During the advanced stages of this deal, the macro-environment began to reverse abruptly, and venture markets seized up. The deal did not complete,” Dodds wrote in the letter, addressed to shareholders who participated in the company’s crowdfunding.

Freetrade declined to comment.

The failure to attract new investors at a higher valuation underscores the challenges faced as central banks tighten monetary policy, listed tech companies plunge in value and easy money from venture capitalists dries up.

Swedish buy now, pay later start-up Klarna, once Europe’s most valuable private tech company, was forced to slash its valuation from $46bn in the summer of 2021 to $6.7bn this July in order to secure new funding.

Freetrade earned its £650mn pre-money price tag in a crowdfunding round last November. “The valuation represented a c. 30x multiple on our annualised revenue run-rate, broadly in line with public market valuations at the time for consumer fintech businesses on a similar growth path,” Dodds said.

The company has raised money from individuals every year since it launched in 2016. Dodds said the company would next week let small backers join in the loan deal it secured in May, which will eventually convert into equity.

The May funding deal rallied existing investors, including £5mn each from its two largest backers, Left Lane and Molten, the letter said. The largest cheque came from Israeli financial group The Phoenix, which is a backer of Left Lane, along with money from L Catterton and Capricorn.

Freetrade has since cut costs to preserve its cash pile. The company shed 15 per cent of its staff in June and has twice reduced its marketing budget, after splashing out on advertising campaigns on the London underground last year. Dodds said the company was “now on a path” to reduce its cash burn to £1mn a month, which is “down considerably from the start of the year”.

The start-up had £1.3bn under management at the end of August, up from around £1bn in November. It made £15.6mn in revenue in the year to last month, an increase of 30 per cent from the same point a year before, Dodds told investors.