- White-hot money transfer startup TransferWise is now worth $3.5 billion after raising $292 million in secondary funding. This will have involved early investors selling their stakes to bigger, richer investors.
- These kinds of trades are still unusual in the European tech ecosystem, which is younger than Silicon Valley, but is heating up fast.
- Experts agree the TransferWise deal is good news: it puts cash back into the ecosystem; gives TransferWise flexibility to go public when it chooses; and shows growing sophistication in the market.
- Existing institutional investors doubling down is also a bullish sign, experts said.
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Early investors in money transfer company TransferWise should pop the champagne today: they will have been rewarded for taking an early bet on the London fintech company, which is now one of the hottest in Europe.
TransferWise announced on Wednesday that it has raised $292 million through a share sale, at a $3.5 billion valuation. In plain English, this means some of its existing shareholders sold part or all of their stakes to other investors.
Those who sold shares include its early investors. Cofounders Taavet Hinrikus and Kristo Käärmann have also reportedly sold a small part of their stakes. TransferWise did not immediately respond when we asked who else may have sold shares, such as early employees.
The secondary trade is interesting in the context of a wobbly tech IPO market, and a European ecosystem that still lags behind Silicon Valley.
Secondary trades, where existing shareholders sell off their shares, are not generally publicised and multiple sources told Business Insider such deals are still rarer in Europe than in the US.
The upshot is that shareholders, usually those who have been since the beginning, now get some return on their original funding. Early staff and founders likewise can cash in their stakes. Other than a secondary trade, their only option would be to wait for TransferWise to go public or sell, neither of which might happen for years.
Read more: A tech exec explains how it feels to spend 1.5 years preparing for a $226 million IPO, only to sell to PayPal for $2.2 billion
That such share sale deals may be becoming more common in Europe is a positive indicator, investors said.
Ben Wilkinson, chief financial officer of TransferWise shareholder Draper Esprit, told Business Insider: “The secondary sale is a sign of the European technology market maturing; finding new ways to provide liquidity to earlier investors is an important part of making technology investment attractive to investors.”
For an early-stage investor that needs to show returns to its backers, a full or partial exit via a secondary trade can be a relief. For a late-stage investor, buying someone else’s shares can be a way into a hot company that’s growing quickly.
“Traditionally, the model of venture capital firms have locked investors in for a minimum of 10 years, meaning companies in Europe have often been forced to an exit earlier than desirable, while investors have been forced to hold shares later than they would want to,” added Wilkinson.
Indeed, Draper announced this morning that it had sold part of its TransferWise stake, which it obtained at a discount in 2017 by buying up funds from early-stage investor Seedcamp. Draper has already seen a return on that Seedcamp deal, in part thanks to the TransferWise trade.
TransferWise can wait for an IPO
Apart from giving investors some welcome cash, the trade gives TransferWise flexibility.
Investors view the company as ripe for a float, and it now has the freedom to choose when it goes public. Some companies can feel pressure to list or sell if their backers want liquidity. Hinrikus told the Financial Times that he believes TransferWise will go public at some point, but the deal means there’s no rush.
Adam Birnbaum, director of GP Bullhound, which is not invested in TransferWise, said: “It’s an alternative to waiting for an IPO. If you look at IPO activity in some cases, like Uber, there hasn’t been that massive tick up in most cases. They’re trading below. So somebody who is early stage, they get to see a scenario where they liquify [their stake], book their return, and not wait for the whole IPO process.”
Not all secondary trades are good news. If a founder or founders sell their shares, it can demotivate employees who see their leaders get a windfall, or indicate the founders are about to jump ship and do something else.
That the two founders have sold part of their stakes, as reported by The Financial Times, may be mixed news. But founders of big, valuable businesses are only wealthy on paper and may need an injection of cash to stay motivated and to fund themselves.
What TransferWise has otherwise said publicly seems to indicate good news — its existing backers, including Baillie Gifford and Andreessen Horowitz, have chosen to increase their stakes.
“If existing investors are reupping, that’s usually a bullish sign,” said Birnbaum. “It’s a signal to others that they have confidence.” Specifically, Baillie Gifford and Andreessen, both sophisticated investors, will have bought into TransferWise at a lower valuation. The latest trade shows they’re willing to stick with the company at a higher valuation.
“It’s saying, ‘We have confidence in the business,'” said Birnbaum.
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