Jaw-Dropping: Revolut Investor Shocks Market, Slices Book Value by a Whopping 40%!

The Decline in Revolut’s Valuation

Venture capital firm Molten Ventures has recently decreased the valuation of its stake in Revolut, the British fintech company. This reduction comes as Revolut awaits a decision from regulators on whether it will be granted a banking license in its home market. Molten Ventures, formerly known as Draper Esprit, initially invested £7.1 million in Revolut in 2018. However, in its annual results released on Thursday, it announced a 40% drop in the value of its investment, reducing it to £54.5 million as of March 31. Molten Ventures is the second investor to make such a move, as Schroders previously announced a decline of 46% year on year in the value of its stake in Revolut.

The Valuation History of Revolut

Revolut was previously valued at $33 billion by investors in July 2021, making it the most valuable private technology group in the UK at the time. This valuation surpassed the $40 billion valuation of Checkout.com in January 2022. However, with the recent declines in valuation by Molten Ventures and Schroders, the attractiveness of Revolut as an investment has diminished.

Delays in Obtaining a UK Banking License

Revolut has been waiting for UK regulators to grant it a banking license since January 2021. Typically, this process takes less than a year, but the company has faced delays. In December 2021, Revolut received a European banking license in Lithuania, but the lack of a UK license has hindered its growth. Chief Executive Nik Storonsky attributed the delays to regulators being “extra cautious” due to the banking crisis. This cautious approach has impacted Revolut’s ability to expand its services.

Challenges and Controversies Faced by Revolut

Throughout the past year, Revolut has faced numerous challenges and controversies. The company has experienced high-profile executive departures, including the CEO and CFO of its UK bank. There have also been clashes with investors over share classes, and a qualified audit by BDO revealed concerns about the verification of two-thirds of Revolut’s revenues. Additionally, Revolut has undergone investigations by the Financial Conduct Authority regarding its corporate culture in 2021, and its risk management and compliance systems were reviewed in 2020. These challenges have raised concerns about the company’s stability and governance.

The Impact of the Pandemic on Fintech Valuations

Revolut’s decline in valuation is not an isolated incident in the fintech industry. Many tech companies received inflated valuations during the pandemic when interest rates were low and cash was cheap. However, with rising inflation and falling consumer sentiment, investors have become more cautious in allocating their funds. For example, Klarna, the Swedish payments company, had to significantly decrease its valuation from $47 billion to below $7 billion in a private financing round in July 2021. Even public fintech companies, such as Affirm listed on the Nasdaq, have experienced significant declines in their stock prices since their debuts. These trends highlight the challenges faced by the fintech sector amid changing market conditions.

Additional Piece: The Future of Revolut and Fintech

The decline in Revolut’s valuation and the challenges it has faced raise important questions about the future of the company and the fintech industry as a whole. While Revolut has grown rapidly and disrupted traditional banking services, its recent struggles emphasize the need for regulatory compliance, transparent governance, and strong risk management.

Innovation and Regulation

Revolut’s initial success was fueled by its innovative approach to banking and its ability to offer a range of financial services through its app. However, as the company expands and seeks banking licenses in different markets, it must navigate the complexities of regulations and compliance. The delays in obtaining a UK banking license demonstrate the challenges fintech companies face in meeting regulatory requirements.

Evolving Investor Sentiment

The decline in Revolut’s valuation also reflects a shift in investor sentiment towards fintech companies. During the pandemic, investors were willing to allocate significant funds to tech companies with promising growth potential. However, as economic conditions change, investors have become more cautious and concerned about the sustainability of high valuations. Fintech companies need to demonstrate their ability to generate revenue, manage risks, and adapt to changing market dynamics to regain investor confidence.

Despite the recent setbacks, fintech companies like Revolut still have significant opportunities for growth. As digital banking becomes more prevalent and consumer behavior continues to shift towards online and mobile services, there is a growing demand for innovative fintech solutions. However, to succeed in this competitive landscape, companies must prioritize building trust, ensuring regulatory compliance, and addressing concerns about governance and risk management.

Venture capital firm Molten Ventures has cut the valuation of its stake in Revolut, the second investor to do so as the British fintech awaits a decision from regulators on whether to offer it a banking license in its home market.

Molten Ventures, formerly known as Draper Esprit, invested £7.1m in fintech in 2018. In its annual results released on Thursday, it said it had reduced the value of its investment at £54.5m in the year to 31 March, a 40% drop on its previous valuation.

It follows a similar move by asset manager Schroders, which announced in April that it was reducing the value of its stake Revolution to £5.4 million as at 31 December 2022, a decline of 46% year on year.

Revolut was last rated by investors at 33 billion dollars in July 2021, making it the most valuable private technology group in the UK ahead of Checkout.com’s $40 billion valuation in January 2022.

The fintech has been waiting for UK regulators to grant it a banking license from January 2021, a process that normally takes less than a year. It received its European banking license in Lithuania in December 2021.

In May, Chief Executive Nik Storonsky told the Financial Times that the banking crisis had made regulators “extra cautious” and was responsible for the license delays.

This year has proved to be a busy one, with departures including the UK bank’s chief and chief financial officer, clashes with investors over share classes and a qualified audit by the BDO, which said it could not fully verify two-thirds of its revenues.

It has previously faced questions about its corporate culture, which led to an investigation by the Financial Conduct Authority in 2021, while its risk management and compliance systems were reviewed in 2020.

Molten Ventures’ decision arose from industry guidelines on valuations that factor in factors such as revenue multiples rather than specific concerns about licensing or other issues, according to people familiar with the company.

Revolut and Molten Ventures declined to comment.

Tech companies that secured jaw-dropping valuations during the coronavirus pandemic, when rates were low and cash cheap, faced a reckoning across the board as rising inflation and falling Consumer sentiment has made investors more careful about how they allocate their funds.

Klarna, the Swedish payments company, was forced to cut its price from $47 billion to below $7 billion in a private financing round last July. Public fintechs have also suffered, with Affirm listed on the Nasdaq down more than 85% since its January 2021 debut.