Freetrade considers sale as buzzy ‘fintech’ valuations crumble

Stock trading app Freetrade is preparing to tap advisers for a possible sale as financial technology start-ups come under pressure.

Freetrade, which last year was valued at £650m by retail investors in a crowdfunding campaign, is planning to hire Bank of America to consider its options.

City sources said Freetrade was mulling a sale or merger with rival financial technology companies. It could also tap the market to raise more investment from venture capital funds.

Founded in London by chief executive Adam Dodds in 2016, Freetrade allows customers to buy British, American and European stocks and funds without trading fees. It has raised more than £110m in venture capital funding and grew rapidly during the pandemic as thousands of people began trading the stock market while stuck at home.

It has raised tens of millions of pounds from ordinary investors through online crowdfunding rounds. But last year, it failed to secure additional venture capital investment at a valuation of £700m. It came as the retail trading boom began to cool, hitting investment platforms across the City of London.

Freetrade, which has over £1.4bn in assets under management, raised £30m in May through convertible loans issued to early investors including London-listed Molten Ventures and investment manager Phoenix. It raised a further £2m from crowdfunding investors in September.

Chief executive Adam Dodds told investors in September: “In parallel to the last crowdfunding round, I was also having conversations with potential new institutional investors.

“Things got advanced enough that I signed a term sheet in December to raise funds at a £700m pre-money valuation.

“During the advanced stages of this deal, the macroenvironment began to reverse abruptly, and venture markets seized up - the deal did not complete.”

The company has since cut its headcount by around 15pc, which Mr Dodds said meant the company would reduce its cash burn to around £1m per month “down considerably from the start of the year”.

Since then, valuations at technology companies have crashed as investors grow skittish. Swedish buy-now-pay-later company Klarna’s valuation plummeted by 85pc in a funding round this year, falling from $46bn to $6.7bn. Robinhood, a US stock trading company and rival to Freetrade, has endured a share price slide of 70pc, valuing it at just over $8bn.

In its latest shareholder update, Freetrade said it made revenues of £15.6m in the 12 months to August and customer numbers were up 65pc to 680,000. Freetrade makes revenues from currency conversions, customer subscriptions and interest on cash deposits.

According to its latest accounts, Freetrade had revenues of £12.7m in the year to September 2021 and made a loss of £18.2m.

Freetrade and Bank of America declined to comment.