UK challenger bank Monzo reportedly suffers down round which sees its valuation drop by 40%

UK challenger bank Monzo has reportedly suffered a down round, resulting in its valuation dropping down from $2bn to $1.24bn.

Confirmation of the bank’s 40% drop in valuation came after it closed a £60m top-up round, according to a report from TechCrunch.

Investors to the capital infusion include existing backers Y Combinator, General Catalyst, Accel, Stripe, Goodwater, Orange, Thrive and Passion Capital. Reference Capital and Vanderbilt University also joined the round to make their first contributions into Monzo.

While it will unlikely become clear what has happened to the bank to cause this drop, it is potentially a causality of the coronavirus pandemic, which has put strain on the economic market.

The report from TechCrunch claims that a number of the investors into Monzo were quite tough on the challenger bank in a hope to lower the price on shares.

It also states the share price is now back to what it was in the bank’s last equity crowdfund, which means those to contribute have not seen a paper loss, it said.

Signs of Monzo struggling during the coronavirus have been seen. It recently had to fire 120 members of its staff. Since the lockdown has begun, the challenger bank has had to close its Las Vegas office and lose the 165-strong team, it also reportedly furloughed 165 members of its UK team.

Its fall from grace has come quite suddenly, with it announcing in February that it would hire 500 new staff and launch a new premium service.

The problems the bank has had even brought rumours it was going to go bust; however, the bank quenched these speculations.

To support the struggling business, the company CEO and co-founder Tom Blomfield announced at the end of the March that he wouldn’t take out a salary for a year and that several of his board members would take a 25% pay cut.

Monzo hit the $2bn valuation in June 2019 after it closed a £113m funding round.

There have been speculations that FinTechs that are forced to raise capital during the lockdown would suffer from reduced valuations. A report from venture capital firm Finch Capital stated just that.

However, the drop in valuations could be a good thing. The market has been heavily inflated over the recent years, with the list of FinTech unicorns becoming quite extensive. Last year even saw Nubank hit a eyewatering $10bn valuation.

Talking on the impacts of the coronavirus, Vilve Vene, CEO and co-founder of core banking platform Modularbank, stated that valuations for FinTech will drop due to the uncertainty of the future, but “it will help to ‘reset’ the market.”

The drop in valuation to Monzo might come as a shock. While the market was expected to see issues, certain FinTechs were expected to benefit. Several companies have seen their operations increase during the pandemic due to their digital-focused operations – a major benefit in an isolated world.

Challenger banks were expected to be one of those to benefit from the quarantine. A report from Bold in Finance claimed that fellow UK challenger bank could see its customers increase from 10.8 million in February 2020 to 13.07 by June 2020. It claims the rise would be caused by people staying away from physical cash and going to their local branch.

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