One of OakNorth’s largest investors has sold shares in the London fintech at a 25% discount to the last valuation.
OakNorth, which processes loans of up to £25m to businesses and sells credit-eligibility software, became one of Europe’s most valuable fintechs in 2019 when it raised $440m at a $2.8bn valuation in a deal led by Japanese investor SoftBank.
But last month, Indian finance media, VC Circle, reported that one of OakNorth's largest shareholders — Indiabulls Housing — sold around 3% of its OakNorth holding for ~$60m (Rs 440 crore). A few weeks later, VC Circle reported that Indiabulls had sold a further 4.7% of its OakNorth holding in exchange for ~$85m.
This would give OakNorth a reduced valuation of around $2bn. A spokesperson for the company told Sifted that the shares changed hands at a 25% discount to the last fundraise (rather than the 30% implied by a fall from $2.8bn to $2bn) when accounting for currency conversions.
The spokesperson added: “This was a private transaction between Indiabulls and the buyer as part of a wider secondary sale Indiabulls is doing, so the price has been set by them based on their capital needs, rather than a re-valuation of the OakNorth business. It is not a primary investment (i.e. new money coming into the business) as OakNorth is extremely well-capitalised for its business plan.”
It is not unusual for secondary sales to happen at a discount, but the price might still come as a disappointment to the company. Reports earlier this year claimed that OakNorth chief executive Rishi Khosla was hoping to secure a boost to its $2.8bn valuation through a secondary-share sale.
Moreover, large secondary-share sales are often seen as "valuation-events" in the absence of a fresh issuance of equity. For instance, fintech peer TransferWise reported a valuation increase to $5bn last month following a $319m secondary-share sale (involving only existing shares).
“Some startups are looking to do [secondary sales] as a valuation data point," said Laura Connell, who oversees Balderton's specialised secondary fund. "If a very large secondary sale happened, that would be a valuation event," she told Sifted earlier this year, adding that ordinary shares are often sold at a 15% discount.
Indiabulls originally took a 39.8% stake in OakNorth in 2015, and is believed to have sold the shares in recent months predominately to meet its own capital requirements, having already profited from the investment.
OakNorth has two main business lines; digital lending and a credit-analysis platform.
Most of the revenues come from OakNorth Bank, which runs the small business lending operation. This is a category which risks being hit hard if the global pandemic turns into a full-blown global recession.
OakNorth Bank's lending portfolio is also heavily weighted in property and construction — two areas which have ground to a halt throughout much of the lockdown. There are also fears housing prices will drop and real estate may sell below expectations, which could put pressure on OakNorth’s book.
The company told Sifted earlier this year that it was reassessing its 2020 revenue forecasts, anticipating the coronavirus to take a toll on the small and medium-sized business it lends to.
“We had pretty ambitious plans in terms of growing the loan book and obviously revenue. [But] the reality is we’re not going to hit those for obvious reasons,” senior executive Nick Lee said.
The company is not the only digital bank to have faced pressure on their valuations this year. Monzo also reported a 40% cut to its valuation this summer, while Revolut and N26 managed to sustain flat rounds.
Still, OakNorth has a large loan book, with around £3.5bn in outstanding loans, and reached profitability within 11 months of operating. It has so far not reported a credit loss this year.
This article has been changed to reflect clarification from Oaknorth about the discount of the secondary sale being 25% rather than 30%.