Finance Matters Insights
Revolut Just Became A Bank
Happy Monday,
Revolut just became a bank.
If you invested in Revolut back in 2016 with £2,000, today your investment would be worth over £1.6million. That's a 822x return.
Somewhere out there, someone thought they already were but that's neither here nor there.
Technically, they were simply an e-money institution. They could let you hold money and move it around but couldn't actually lend or fully complete with your high street banks. Now they can. It's great news for quite a number of people involved, from existing customers to new customers but specifically early investors.
So, if you're wondering how we got here and how is it that people knew how and when to get invested… keep reading.
💰 Early stage investing:
When you invest in a company at an early stage, you're buying a stake in a single business. It's not a portfolio, it's one company - one bet.
With that, you have to do your research, make your own call and take the risk that comes with it. If it works, the returns can be extraordinary. If it doesn't, you can lose everything you put in.
When you invest in a company early, they're unlisted. This simply means you can't open up your trusted investment platform and purchase a share or two on a random Tuesday. You have to wait for a crowdfund. And, unlike buying shares in a listed company, you also can't just sell your shares when you feel like it. Your money stays in until they give you a way out - this is what we call ‘an exit’.
The most common exit is an IPO (Initial Public Offering) - this is when a private company first sells their shares on a Stock Exchange. They do this typically for 3 reasons:
Why companies IPO
- Raise capital for expansion
- Pay off debt
- Provide liquidity to early investors
It takes that company from private to public, which brings a whole new layer of regulatory compliance with it. Fun.
An IPO is not the only route out though. Early investors can also get a payout if the company is acquired or if a secondary sale share is offered. Sometimes, none of the three happens at all.
So as you can see, it's not a get rich quick investment. It takes understanding your investment and being willing to ride the wave for a hopefully smooth landing (& big return).
I spoke about the nature of individual stock picking vs ETFs in a recent Reel if you want a quick breakdown.
🏦 Revolut's early investors:
Revolut started in 2015, marketed as a prepaid card to stop you getting robbed on holiday currency fees.
In 2016, they opened up a crowdfunding round on Crowdcube.
- 433 investors
- An average investment of ~£2,152 each
- Revolut had a $40million valuation at the time
In 2017, another crowdfunding round. This time, nearly 3,500 investors.
Today, Revolut are valued at ~$75billion. For the first round investors, that represents a 1,875x return on the original valuation.
The 822x return on an initial £2,000 investment I mentioned earlier takes into account two important factors:
TWO IMPORTANT FACTORS
- Dilution: When a startup raises money over the years, it will issue new shares to more investors. This means that your original slice of the pie essentially gets smaller as there are more investors involved - more people to feed.
- Currency conversion: Revolut's valuation figures are by the dollar but we're working with GBP investments and returns.
With all that considered, it's still a fantastic day to be an early stage Revolut investor.
💭 What does the banking license mean now?
It's not an automatic payday for investors but it's a massive shift in prospects.
Being a fully regulated UK bank makes Revolut more credible to regulators in other markets, unlocks lending as a revenue stream and makes the business case for going public significantly stronger.
When they do eventually IPO, everyday investors who couldn't access the private rounds back in 2016 and 2017, will finally get their opportunity. However, at that point, you're not getting in at a $40m valuation…you're getting in at whatever the public markets price a $75billion+ company at.
It's different risk because unlike 2016, we know that Revolut's business model is proven. So, with that comes different reward too. The biggest gains will belong to those who got in before everyone else.
The Revolut story is a good reminder that wealth building rarely looks exciting in the middle.
I can look like £2,000 sitting in an unlisted company for years, through losses, regulatory delays and bad press cycles, with no guarantee of a return. Those who benefit aren't necessarily just ‘lucky’ - they did their research, understood their investment and had the patience to leave it alone.
Whether it's early stage companies, individual stocks or ETFs, understanding your vehicle before you get in is key.
F
Fisayo Martins
Founder at Finance Matters UK
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