Starling Bank has officially joined Europe's unicorn club.
The fintech announced it had hit a £1.3bn valuation (post-money) after raising £272m — its biggest raise to date.
In an interview with Sifted, Starling founder Anne Boden said the valuation was "an increase" from previous rounds, but declined to confirm if the bank had ever hit the $1bn milestone (£723m) before.
The new raise has seen the digital bank welcome fresh institutional investment, having previously been largely funded by an overseas billionaire, Harald McPike.
Boden confirmed that the new round — once approved by regulators — would see McPike cash in some of his existing shares, reducing his holding to just under 40%.
Among Starling's new investors are Fidelity, the US asset manager, the Qatari Investment Authority (QIA), a UK pension fund — Railpen, and global investment firm Millennium Management.
Interestingly, QIA is also an investor in Tandem — another London digital bank that launched at a similar time to Starling.
Starling will now be one of the few London fintechs to have pensioners among its direct shareholders.
Asked if this felt high-risk, Boden told Sifted: "It's absolutely fantastic...Pension funds invest in large stable companies. Starling is bigger now, and profitable...They're not VCs. These are investors that invest in real solid numbers and real solid growth."
The raise should mute earlier speculation that Starling Bank was being touted for acquisition. Boden publicly dismissed the rumours at the time.
At the last count, the bank said it had opened 2m accounts in the UK, more than 75% of which are retail customers.
New investors, new style
Starling Bank has positioned itself as an anomaly among its fintech peers, dismissing the 'growth at all costs' mantra. It has favoured profitability over customer downloads, and focused on attracting active and older users to grow its deposit base.
However, the new raise — alongside having US heavyweight Fidelity onto its cap table — should now see Starling take a more aggressive stance, including taking on Europe. Asked if the latest funds marked a new era of ambitious growth, Boden said: "Yes, I think it does."
Starling has already changed its tune today. It shared its valuation publicly for the first time, and publicly touted the number of "account openings" — a figure it previously said it preferred not to focus on. The company also shared that the new funding would be put towards "launch[ing] Starling in Europe and for anticipated M&A."
Earlier this year, Boden told Sifted that M&A would likely focus on buying a peer-to-peer lender to help it grow its lending book.
Meanwhile, its European expansion plans hinge on it securing an Irish licence.
While there is still no date for the Irish licence, Boden said they had begun building out the team there.
Lower valuation than expected?
Starling's £1bn+ valuation is not to be sniffed at, but considering the company has now raised over £660m in funds, a billion-dollar valuation isn't a wildly lucrative multiple. This may be down to a general drop in digital bank valuations, with Monzo now sitting at a similar valuation (while Revolut and N26 boast pricetags of between £2.5bn and £4bn).
Alternatively, as a newly profitable startup, Starling may simply have given its new shareholders a more realistic take on its growth trajectory. French fintech founder Hugues Le Bret told Sifted last year that being unprofitable made attaining sky-high valuations easier.
“If you’re not profitable, people dream… [so] until you have sold the company, the value is theoretical,” Nickel’s founder tells Sifted, blaming the use of preferred shares (which ensure some investors get paid out first) for distorting valuations.
“It’s funny money when you increase your capital [using certain clauses]… you can have any value you want.”
To this point, Starling booked its fourth successive month in profit this month and says it expects to report a first full year in profit. It also purports to have a banking-as-a-service platform, looking to diversify beyond its customer revenue-line.
Asked if the valuation seemed low, Boden told Sifted: "Starling has never pursued a high valuation for the sake of valuation for the sake. It's much more important to get a good valuation at IPO," before noting there was still "a long way to go" before it went public.
She added: "[Starling has] always taken a very sensible approach to making sure it has the right investors...rather than simply going after high valuation."
Meanwhile, Starling's value per user now sits at ~£650. That actually puts the fintech ahead of Monzo and Revolut on a like-for-like basis (both have significantly more downloads cumulatively than Starling, and also launched first).
