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Why is Revolut opting for a “liquidity facility” from a mystery lender?

Coinciding with a valuation markdown from an investor, Revolut says its new funding line is small. But it could be the start of a wider fintech funding trend.

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Nikolay Storonsky (left) & Vlad Yatsenko (right)/Revolut.

Digital banking challenger Revolut has had a busy start to 2023. 

It’s shipped a number of new products, brought in a new behavioural team to improve its corporate culture, finally published its long overdue accounts and even reported its first profits (for 2021).

Oh, and it even is on the hunt for a new London HQ too.

What has been noticeably absent is a big bumper funding round though. 

Revolut last raised cash - rather cleverly timed - at the peak of 2021’s venture capital bull market with a monster $800m Series E. This helped it lock in a tasty $33bn valuation that nudged it to the top of the European fintech tables, at least for valuations. 

It also meant, unlike peers, it didn’t need to return to capital markets in 2022 when the macroeconomic environment seemed to deteriorate further each month and VC funding declined as rapidly as interest rates went up. 

Today, approaching two years on, the company is yet to raise a new round. Why? 

Yes, the company says it now is on a path to sustainable profits. But the long-term sustainability of this is yet unproven - and filed with Companies House - and more cash would clearly help fund its massive growth ambitions.

Could perhaps the fintech behemoth be looking at alternative means of financing? 

Revolut has confirmed to me it has now set up what it calls a  “liquidity facility” with an external lender. 

According to a Revolut spokesperson, the sum it can call on is relatively “modest” and the company is yet to draw down any of the funds.  

“Liquidity facilities can be used by financial services companies in line with regulatory liquidity guidance and this facility takes us above and beyond the liquidity guidance as a prudent measure,” they said. 

“We have not drawn down any of the funds as they simply provide diversification in our contingency funding as we continue to grow globally,” they said.

The line of credit is structured via a debenture, a legal security structured to provide a long-term return to the lender that is secured against assets. 

It is typical for funding lines or other facility arrangements to include a security package to the lender via a debenture, which is the reason it has been filed at Companies House.

In this instance, the deal is done via Kroll, which gives anonymity to the lender. 

The news of the funding line comes at a crunch time for Revolut. This week its valuation was marked down by an investor - Schroders - by 46 per cent alongside Atom Bank (down 31 per cent). 

It is still pursuing its long-term goal of landing a UK banking license, something that has been in the works for a number of years, recently saying it was nearly at the “finish line”.

If Revolut’s new funding line is not to replace a funding round. Perhaps it could be a last helping hand to help it across.

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