Zopa announces £220m funding round ahead of IPO

British digital bank Zopa has raised £220m in a funding round ahead of plans to list in London next year.

The deal, led by SoftBank’s Vision Fund 2, reflects Zopa’s changing fortunes as it has transitioned away from purely offering peer-to-peer lending to increasingly providing banking services.

“For us, the capital we’re looking to raise is to fund the growth of the balance sheet,” chief executive Jaidev Janardana said in an interview with the Financial Times.

The capital raised, he said, “also means we can be more flexible in our timing” of an initial public offering.

Sources close to the deal said it would value Zopa at £750m, joining London’s fintech ‘unicorns’ such as digital banking start-ups Revolut and Unicorn with valuations of at least $1bn. That compares to an estimated valuation of £188m in December 2019, when it faced political and market uncertainty around Brexit.

Janardana said the funding round, which included participation from Chimera Capital and existing investors including US investment firm IAG Capital, had raised more than expected.

“We think we are ready [to list], but one thing I would like to have is a track record of profitability before going public,” he said, with the earliest date for an IPO being the fourth quarter of 2022.

He said the decision to list in London, where investors look for “a combination of profitability, strong unit economics and growth”, would play to Zopa’s strengths, although he acknowledged the “mixed bag” of IPOs listed in the city this year.

Shares in high-profile listings such as food delivery app Deliveroo and semiconductor IP company Alphawave have fallen steeply, although greeting card group Moonpig and Virgin Wines had more favourable IPOs.

Zopa was a pioneer of the peer-to-peer lending industry when it launched in 2005, but began its pivot into banking in 2016 in order to access more stable ways to fund its loans.

In 2019, it was forced to urgently raise £140m from IAG in order to maintain its provisional banking licence. In June 2020, it was granted a full banking licence, with a focus on credit card, auto finance and personal loan products.

“With retail financing you are able to create a business model that is more sustainable,” said Janardana. He argued that the company’s combination of peer-to-peer lending and banking, coupled with its digital offerings made it a competitor for incumbent banks.

The wider peer-to-peer lending sector has faced a number of challenges in recent years. In 2019, after a series of high-profile problems, the Financial Conduct Authority released tougher new rules.

The coronavirus pandemic also made the situation more difficult, with capital markets drying up and retail investors seeking to withdraw their funds. Peer-to-peer lender Funding Circle, which listed at a valuation of £1.5bn in 2018, had its market value fall to less than the amount of cash on its balance sheet in 2020.

SoftBank has backed a number of European fintechs. This year, it led a $639m funding round in Swedish buy now, pay later company Klarna and an $800m funding round in Revolut, alongside Tiger Global Management.