Freetrade the commission-free share investing app has undergone a dramatic cut in its valuation as it seeks to raise new cash through crowdfunding and is now valued at just £225 million.
Freetrade has reduced its valuation ahead of a new crowdfunding campaign. In November 2021 the free share dealing service was valued at £650 million but just over 18 months later that figure has shrunk to £225 million.
The new valuation aligns Freetrade with listed US rival Robinhood (HOOD), which has lost 70% of its market cap in the last two years.
Freetrade is the latest fintech to see its valuation slashed, Revolut’s valuation was recently cut by 50% following a markdown by one of its largest investors.
The CEO of Bitpanda, (an Austrian cryptocurrency unicorn) Eric Demuth, was recently quoted as saying:
“ if any fintech company that raised money in 2021 were to raise next week, the market standard right now is a 50% to 70% devaluation”
Freetrade’s valuation cut
Freetrade’s valuation has been drastically cut for two reasons firstly the appetite of VC funds for fintech investment has sharply declined. The sector has a high failure rate, and institutional investors have pumped billions into fintechs in prior years.
For example, in 2021 global fintech investing peaked at $238.90 billion, according to data from Statista.com. In 2022 that figure fell to $164.1 billion and in Q1 2023 just $14.0 billion was invested in the sector.
The second reason for the £425 million valuation cut at Freetrade is the fall off in equity trading volumes and new account openings, both of which were boosted by the lockdown and the meme stock frenzy.
Post lockdown both metrics have normalised, in the US traders have switched their attention to short-dated options trading. However, UK regulators regard options trading as complex derivatives and therefore not suitable for retail traders.
Loss-making Freetrade’s trading performance has also been poor. The firm posted losses of £3.30 million on a turnover of £4.7 million in the first three months of 2023, despite a round of cost-cutting and redundancies last year.
Freetrade’s fundraising
Freetrade has been through 13 funding rounds according to Crunchbase research, and has raised a total of $135.0 million or £107 million.
The firm last raised money through crowdfunding in September 2022, when it attracted $1.7 million or £1.34 million, based on today’s exchange rates.
Freetrade has raised more than £27.0 million through crowdfunding on Crowdcube from more than 29,000 investors.
Fintech outlook
The outlook for fintech startups is pretty bleak if they haven’t already achieved critical mass or aren’t nearing profitability.
We have recently reported on the closure of Clim8 and the pivot away from share trading by Tulipshare. Earlier this year AJ Bell founder Andy Bell warned of further failures in the sector.
Saying that:
“Ultimately, businesses need to make money and there are some business models out there that I look at, and think it’s just inconceivable that they could ever make any money now.”
Research by the Fintech website Chargedretail found that half of all Fintech firms had halted hiring in 2023 and that there had been more than 4000 job cuts among the 45 fintechs it surveyed.
Just this week ETF startup Circa5000 announced it was seeking new cash through crowdfunding, having previously tapped the market for £3.90 million in December 2021.
It’s hard to imagine how or when Freetrade will become profitable in the current environment and at some stage its ability to raise new cash will likely diminish in my opinion.
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