UK Fintech Freetrade Acquires £30M via Loan Agreement

Freetrade, the UK-based stock brokerage app provider, has secured £30 million via a loan agreement in order to boost its financial resources without having to commit to a new valuation for the firm.

The FT reports that the announcement comes at a time when startups are struggling to acquire capital in a slow market.

The UK-headquartered Fintech company had achieved a £650 million valuation after a crowdfunding round in November of last year.

This year, Freetrade added £30 million to its balance sheet via a loan, which will be converted into equity later on.

Adam Dodds, CEO of the company, stated that the crowdfunding and November valuation had both come at what was considered “objectively the peak of the public market.”

But the world has now “changed,” Dodds added.

For the latest fundraising, he noted:

“We didn’t price the round on purpose. By doing a convertible loan note, you take that out of the equation. It’s choppy markets. To zero in on a valuation at this point is maybe not that helpful.”

The announcement comes as the valuations investors in the stock market are set to attach to brokers have dropped. This, as equity markets have experienced a downtrend and the Coronavirus crisis has contributed to retail trading gradually slowing down.

Shares in US-based neobroker Robinhood have also dropped 44% since January 2022, meanwhile, UK-listed brokers such as Hargreaves Lansdown and AJ Bell have declined over 30%.

As reported by the FT, recommended tech industry technology groups had cut jobs and risk-taking due to the challenges in the current market.

Sweden’s Buy-Now-Pay-Later (BNPL) Fintech Klarna might reportedly cut as much as a third from its $46 billion valuation as it attempts to secure around $1 billion in capital, according to a recent report from the WSJ.

The current sell-off in fast-growing tech firms, initiated by changing reserve bank policy, also suggests that there could be a more challenging environment for startups (or early-stage companies) to acquire funding and then match the valuations they secured in recent years, when investors had been more enthusiastic about technology sector businesses.

Dodds added that public tech firms have been “oversold,” however, he also noted the cut to stock market valuations may start to “filter down” to private businesses.

He also mentioned:

“When market conditions come like this, the prudent thing to do is go and raise some more money.”

He thinks this should enable Freetrade to keep investing in its business growth.

Despite this, he does think that hiring will slow down at the firm and across the financial services sector.

He added:

“I think the mood music is not to be spending ahead of your growth. We’re going to get through these ups and downs. That’s the point of raising these funds.”

As noted by the FT, Freetrade investors Left Lane Capital, Molten Ventures and L Catterton have reportedly joined Israeli financial group The Phoenix and Capricorn Capital Group in providing the loan.

The firm reported a pre-tax loss of £18 million in the year to September 2021, according to its latest financial update, a copy of which had been reviewed by FT.

Revenues grew to over £12 million, from below £2 million in the year prior, as the Coronavirus led surge in retail trading activity had led to Freetrade doubling its customer base and significantly increasing trading volumes.

Freetrade’s management noted that the losses had been reported as it invested considerably in further developing its app and expanding its business operations across Australia, Canada, and Sweden as it prepares for a global expansion.

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