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Funding mega-rounds highlight investor ‘fomo’

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We wrote last week that readers should be on the lookout for more funding mega-rounds, with venture capitalists particularly keen on companies like Stripe. A week later, and we’ve already seen $750m pour into two would-be Stripe rivals. 

London-based Checkout.com was the first, becoming Europe’s most valuable private tech company with a $450m deal that valued it at $15bn. Rapyd, which was founded in Israel but is now also headquartered in London, followed the next day with a $300m investment at a $2.5bn valuation.

The two companies differ slightly in approach — Checkout focuses more on payment processing and acquiring while Rapyd also offers products such as white-labelled digital wallets — but both have benefited from a coronavirus-induced surge in digital payments, and a concurrent surge in interest from investors.

Both raised cash earlier than they had planned, as firms such as Tiger Global — which now has shares in Rapyd, Checkout and Stripe — have begun actively seeking out companies before they need to raise money.

Checkout’s new $15bn pricetag is almost three times higher than the valuation at its last fundraising round just seven months ago, and follows similarly dizzying share price growth at publicly listed companies such as Adyen and Square. Stripe, meanwhile, has held discussions about a further private funding round that could value it as high as $100bn.

The companies say the surging valuations highlight confidence that the trends encouraged by the pandemic — declining cash usage and rising numbers of online and digital payments — are here to stay for the long term. Cynics suggest some investors also have an eye on more short-term gains from a potential wave of consolidation.

“Basically, Stripe has raised so much money at such a high price there is a run on all companies that compete with a similar value proposition,” said one senior payments executive. “There’s not a lot of yield on cash, add that to fomo [fear of missing out], and here we go!”

Arik Shtilman, Rapyd chief executive, acknowledged that his company has benefited from a relative lack of choice for investors who want to gain exposure to the sector.

“Investors are looking to put money in good companies that are doing online payments. The reality is there aren’t a lot of companies that are big and global and doing it well,” he said.

He stressed, however, that underneath the investor exuberance “the numbers are real”. 

“Growth because of the pandemic has been insane . . . In three months we skipped three years.”

Rapyd intends to use some of the money it raised last week to make several smaller acquisitions to help it “double down” on its position in Brazil, speed up the process of getting regulatory licences in Asia, and potentially pick up bargains among companies that were damaged by the collapse of the airline industry in Europe.

Mr Shtilman believes there is a “very low” chance of Rapyd becoming a takeover target itself, but recent experience shows that even companies with larger valuations like Checkout can be snapped up.

“A lot of the investors in the space talk about a wave of consolidation,” said the first senior executive. “And shareholders largely have been welcoming of the economics of these deals because they ultimately lead to revenue synergies, and there’s tonnes of overlap in software and development and other costs.”

There have already been a string of tie-ups in the payments industry over the past two years, including Worldline’s €7.8bn purchase of Ingenico, Fiserv’s $39bn deal with First Data, FIS’s $43bn acquisition of Worldpay and Global Payments’ $22bn deal for TSYS. Last month the Wall Street Journal reported that FIS and Global Payments had held talks over an even larger combination. 

Visa’s attempted acquisition of Plaid fell apart last week due to competition concerns, but as with the talks between FIS and Global Payments, the discussions show that the appetite for deals among major firms has not gone away.

Quick Fire Q&A

Company name: Soldo

When founded: 2015

Where based: London, UK

CEO: Carlo Gualandri

What do you sell and who do you sell it to: Every business spends money, but often inefficiently. We want to change that by helping to automate pay and spend processes

How did you get started: Founded by Carlo Gualandri — an entrepreneur who builds successful companies in industries transformed by market shifts, technology and regulations

Amount of money raised so far: $83.2m

Valuation at latest fundraising: Not disclosed

Major shareholders: Battery Ventures, Dawn Capital and Accel Partners

There are lots of fintechs out there — what makes you so special? We’re liberating organisations from the chaos and confusion of managing business spending by streamlining financial administration, enabling efficiency and growth.

Further Fintech Fascination

Plaid deal unravelled by DoJ checks: One of the biggest fintech deals of 2020 was abandoned almost a year to the day after it was first proposed. Payments giant Visa called off the $5.3bn acquisition of Plaid after the US Department of Justice tried to block it on competition grounds. Visa insisted it was confident it “would have prevailed in court”, but said it wanted to avoid “protracted and complex litigation”.

“I read in the FT what a naughty boy you are”: Last week the German parliamentary inquiry into Wirecard turned its focus to the major banks that backed the once high-flying company, questioning figures including Deutsche Bank chief executive Christian Sewing, Goldman Sachs’ Germany chief Wolfgang Fink and former Commerzbank CEO Martin Zielke. The most awkward moment of the week, however, was reserved for Deutsche board member Alexander Schütz, as it emerged he had urged Wirecard’s Markus Braun to “do [the FT] in!!” over its critical coverage of the now-disgraced payments group.

Buy now: Affirm made its stock market debut with a bang on Wednesday. The company’s $49 per share IPO price was already comfortably above its initial target range, but by the end of the first day of trading, shares had almost doubled to $97.24. By Friday the lender, led by PayPal cofounder Max Levchin, had a market capitalisation of over $28bn.

Pay Later: Not everyone is so pleased with the rapid growth in the buy now, pay later industry. As FintechFT warned last week, scrutiny of the sector is also ramping up. The UK’s Financial Conduct Authority was already looking at the sector as part of a broader review of consumer lending, but, as the Guardian reports, dozens of MPs are calling for more immediate action to avoid a surge in young people getting into unsustainable debt.

Jack Ma vs Xi Jinping: Another key story we highlighted last week was the tumult at China’s Ant Group, which ran into trouble after founder Jack Ma criticised Chinese regulators shortly before it was due to IPO. This long read from the FT’s Tom Mitchell, Yuan Yang and Ryan McMorrow examines the tensions between entrepreneurs like Mr Ma and the Chinese state. Meanwhile international investors like BlackRock, GIC and Silver Lake are debating what to do after being stuck with illiquid stakes in Ant after the collapse of its IPO.



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IPOs / FFOs

Instacart valued at $39bn in funding round ahead of IPO

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Grocery delivery app Instacart has raised $265m from its existing investors, doubling the company’s valuation following the pandemic boom in demand.

Instacart, the US market leader in the grocery app sector, said the round valued the company at $39bn, up from $17.8bn at the time of its previous fundraise, which closed in November last year.

The company said it intended to use the money to increase its corporate headcount by about 50 per cent this year, a hiring spree that would be spread across the business.

The cash injection comes as the company lays the groundwork for a long-anticipated initial public offering. In January, it announced it had hired Goldman Sachs banker Nick Giovanni as its new chief financial officer. Giovanni had previously been involved in IPOs from Airbnb and Twitter.

“This past year ushered in a new normal, changing the way people shop for groceries and goods,” Giovanni said in a statement announcing the latest round.

“While grocery is the world’s largest retail category, with annual spend of $1.3tn in North America alone, it’s still in the early stages of its digital transformation.”

The company declined to comment on its timetable for going public.

Last week, Instacart added its first independent board members — Facebook executive Fidji Simo, and Barry McCarthy, a former finance chief of streaming platforms Spotify and Netflix.

Notably, McCarthy was the architect of Spotify’s 2018 direct listing, a process by which a company goes public without creating any new shares.

Over the past year, Instacart has been a key beneficiary of lockdown conditions, with many physical retailers restricting walk-in access to stores.

To accommodate the demand, Instacart’s gig workforce has swollen to more than 500,000 across the country. Over the course of 2020, the company said it added more than 200 retailers and 15,000 additional locations to its app.

However, the company faces growing competition from other delivery apps — such as Uber — and other online grocery offerings from retailers such as Walmart and Amazon.

And, as pandemic conditions subside, interest in online grocery shopping may tail off, suggested Neil Saunders, a GlobalData analyst. He also warned that Instacart is at risk of being forced out by grocery stores once they have their own ecommerce strategies more firmly in place.

“Paradoxically, the drive online has actually made retailers a lot more interested in investing in their own systems,” Saunders said. “If retailers decide to go it alone, it leaves Instacart out in the cold.”

The company said it would use the latest funding to increase its investment in its fledgling advertising business, as well as Instacart Enterprise, its “white label” service for companies that want to use Instacart’s logistics with their own branding.

The round was led by Andreessen Horowitz, Sequoia Capital, D1 Capital, Fidelity, and T Rowe Price.



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UK listing rules set for overhaul in dash to catch Spacs wave

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A Treasury-backed review of the City has called for an overhaul of company listing rules so London can better compete against rivals in New York and Europe and grab a share of the booming market for special purchase acquisition vehicles.

The review, to be published on Wednesday, also proposes allowing dual-class shares to give founders greater control of their businesses and attract a wave of tech companies to the London market.

The City’s attractiveness has stumbled in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. New York’s markets have been further swelled this year by a surge of so-called Spacs, which raise money from investors and list on a stock market, then look for an acquisition target to take public. Britain’s edge also has been eroded by a loss of trading businesses to European rivals since Brexit.

Rishi Sunak, chancellor, who commissioned the independent report, said the government was determined to enhance the UK’s reputation after leaving the EU, “making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike”.

The review, which was carried out by Lord Jonathan Hill, former EU financial services commissioner, has recommended a wide range of reforms to loosen rules that have tightly governed listings in the UK.

Lord Hill has recommended lowering the limit on the free float of shares in public hands to 15 per cent — meaning founders need to sell fewer shares to list — and wants to “empower retail investors” by helping them participate in capital raisings. 

He has also proposed a “complete rethink” of company prospectuses to cut regulation and encourage capital raising, and suggested rebranding the LSE’s standard listing segment to increase its appeal. The chancellor should also produce an annual “State of the City” report.

The government said it would examine the recommendations — many of which require consultations by the Financial Conduct Authority.

Lord Hill also recommended that the FCA be charged with maintaining the UK’s attractiveness as a place to do business as a regulatory objective. 

The FCA said it aimed to publish a consultation paper by the summer, with new rules expected by late 2021. 

Lord Hill said the proposals were designed to “encourage investment in UK businesses [and] support the development of innovative growth sectors such as tech and life sciences”.

He said the UK should use its post-Brexit ability to set its own rules “to move faster, more flexibly and in a more targeted way”, in particular for growth sectors such as fintech and green finance.

However, the recommendations will cause concern among some institutional investors which have argued that loosening rules around dual-class shares, for example, will risk lowering corporate governance standards. 

The review said London needed to maintain high standards of governance, with various ways recommended to mitigate risk. On dual shares, for example, it recommended safeguards such as a five-year limit.

Amid fears that the government could go too far with a drive for deregulation, Lord Hill said his proposals were “not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage . . . they are about closing a gap which has already opened up”.

Other recommendations include making it easier for companies to provide forward-looking guidance when raising capital by amending the liability regime, and improving the efficiency of the listing process. 

The inclusion of a recommendation to help Spacs list in London by no longer suspending shares after a target is picked will be welcomed by many investors.

However, the rapid growth of such vehicles loaded with billions of dollars in speculative cash has also raised concerns about a bubble forming in the market.

Lord Hill said there was a risk that the UK was losing out on “homegrown and strategically significant companies coming to market in London” from overseas Spacs.

The UK has lagged behind New York and Hong Kong in attracting the types of companies from sectors, such as technology and life sciences, that dominate modern economies and attract investors seeking growth stocks. 

London accounted for only 5 per cent of IPOs globally over the past five years, while the number of listed companies in the UK has fallen by about 40 per cent since 2008. The review also pointed out the most significant companies listed in London were either financial or representative of the “old economy” rather than the “companies of the future”. 

Lord Hill referred to the flow of post-Brexit business to Amsterdam to make the point that the UK faced “stiff competition as a financial centre not just from the US and Asia, but from elsewhere in Europe”.

The steps represent a win for the London Stock Exchange Group, whose chief executive David Schwimmer has called for a more competitive listing regime. He said it was possible to strike a balance between being competitive and maintaining high corporate governance standards.



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Quorn owner Monde Nissin plans record Manila debut share offer

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The Philippines’ top instant noodle producer and owner of UK meat substitute maker Quorn plans to raise as much as $1.5bn from what would be a record initial public offering in Manila.

Monde Nissin, which produces Lucky Me! instant noodles and SkyFlakes crackers, said on Thursday in an IPO prospectus that it would sell 3.6bn shares at up to 17.50 pesos each to raise a total of up to 63bn pesos ($1.3bn).

The listing could raise as much as $1.5bn if banks on the deal exercise an option to sell 540m additional shares.

At $1.3bn, the IPO would already be the largest by a Philippine company as well as a record debut share offer in Manila.

Monde Nissin said the funds raised would be used to boost production at its flagship noodle brand in the Philippines and to increase capacity at Quorn, which Mondo Nissin acquired in 2015 for £550m.

Quorn has enjoyed strong demand in recent years, bolstered by high-profile domestic hits including a “vegan-friendly” sausage roll sold at bakery chain Greggs. Quorn has also partnered with Liverpool Football Club to offer meat-free meals on match days.

But it has struggled to turn out enough of its fungus-based meat substitute to move substantially beyond its retail customer base, even as competitors such as Beyond Meat have clinched deals with chains including McDonald’s.

“They just don’t have enough supply; in the US [in particular] that’s really held them back,” said one banker on the deal, pointing to the limited rollout of a Quorn-based vegan burger known as “The Impostor” through a partnership with KFC.

The banker said Quorn was “going to attack the US much more aggressively” once it boosted capacity. Assuming sufficient supply, there was a long list of fast food clients who would “adopt Quorn because it’s competitive on the chicken side”, the banker added.

The listing, which is expected to price in April, would be the latest big offering in what bankers say is on pace to be one of the strongest years yet for IPOs in south-east Asia — one of the first regions outside China to be hit by the Covid-19 pandemic, and which is expected to be among the first to emerge from it.

ThaiBev, the drinks group, is poised to list its brewery business in Singapore in a deal expected to raise about $2bn and potentially value the unit at up to $10bn, people familiar with the matter told the Financial Times in January.

The Monde Nissin IPO is a rarity for the Philippines in that the entirety of the base offering will be new shares, rather than being sold off by existing shareholders.

Pre-IPO stakeholders include Betty Ang, the company’s president, and the family of her Indonesian husband — the son of Hidayat Darmono, who founded Indonesia’s dominant biscuit maker Khong Guan.

Both Ang and her extended family keep a notoriously low profile. One banker on the deal described Ang and her relatives as “very, very private”.

Bookrunners on the Monde Nissin IPO include UBS, Citigroup and Credit Suisse.



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