Startup bank Monzo is worth $2.5 billion and eyeing US expansion. Here's why its CEO would think twice about taking SoftBank's billions.

Monzo

Tom Blomfield, CEO and founder of Monzo.

• Monzo, the fast-growing $2.5 billion UK challenger bank, has raised $413 million and is thought to be raising more.
  
• The neo-bank is eyeing US expansion, and reportedly met with Japanese mega-investor SoftBank as a potential backer.
• But one potential drawback of taking SoftBank's money is the pressure to spend its billions fast, which can lead startups to overreach.
• "I worry that taking money from someone like SoftBank does commit you to a certain course of action," Monzo CEO and cofounder Tom Blomfield told Business Insider in an interview.
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SoftBank's $100 billion Vision Fund may have redefined technology investing, but some founders are circumspect about the benefits of near-infinite capital.

The Japanese firm's behemoth fund has backed tech startups of all stripes since its inception in 2014. Founded by SoftBank CEO Masayoshi Son, who made and lost a fortune during the dot-com boom and bust, the Vision Fund has come to dominate startup financing, especially in the US and Asia.

SoftBank-backed Uber and WeWork typify the Vision Fund playbook: use near-infinite capital for aggressive marketing and expansion, drive out the competition or incumbents, then (presumably) win.

As Uber's wobbly IPO and WeWork's collapsed float demonstrate, the win isn't guaranteed.

One of the UK's hottest startups, challenger bank Monzo, reportedly met with SoftBank twice in 2019 and is thought to be in the process of fundraising at the moment.

Monzo won't comment on the rumors, but CEO Tom Blomfield is circumspect about taking SoftBank's money when asked in an interview. He points to Uber, which used its SoftBank arsenal to expand rapidly.

"I do worry a little about taking money from someone like SoftBank because it commits you to a certain course of action," Blomfield told Business Insider. "We do have the debate with existing and potential investors over whether to go for the land-grab style like Uber."

While Uber is now the most downloaded ride hailing app globally, its numerous battles with transport authorities around the world suggest it's also paying the price.

Blomfield added: "I think the Uber approach has been really, really interesting because it has influenced a generation of entrepreneurs who see Uber basically using at the time what was infinite, practically free capital as a weapon."

Business Insider has approached SoftBank for comment.

Blomfield says Monzo wants to pursue sustainable growth

Monzo is still early stage by comparison. The London-headquartered startup provides a number of financial services ranging from current accounts to saving pots to loan access. It has become popular with younger consumers thanks to its hot coral card and easy-to-use app, and now has 3.8 million customers.

It is planning to scale into the US, but Blomfield has emphasized the importance of growing sustainably.

MonzoMonzo's "hot coral" debit card

"I think actually having a sustainable business model really early on and positive, unit economics is really important for almost every business," Blomfield said. "I think it's taken about 10 years of entrepreneurs trying that model and very painfully failing to realize it. It [the Uber model] might work. I don't think it's a universal model for sure."

Monzo's growth has been slightly more modest than rivals. Its 3.8 million customers compare with around 5 million at Germany's N26 and 7 million at Revolut. Monzo still brings in around 200,000 new users a month.

Asked about the key to fundraising over the long term, Blomfield said the key was to "build relationships with investors early and share your operating plans and then go and hit those plans."

The bulk of his investors stem from his days as a cofounder of another UK fintech firm, GoCardless. Blomfield cofounded GoCardless in 2010, before departing in 2013 for neo-bank Starling. He founded Monzo two years later.

Blomfield counts Y Combinator's Continuity fund as a Monzo backer, having first come across the investor at GoCardless. Other GoCardless-era backers include Passion Capital's Eileen Burbidge, Sonali De Rycker at Accel and Adam Valkin, formerly at Accel.

The bank remains unprofitable as it stands and will continue to be for the next two to three years, according to Blomfield. The startup lost £47.2 million ($61 million) in 2018 on revenues of $73 million. However, the expectation is that those losses will remain in the millions rather than spiraling into the billions.

For Monzo, with its current trajectory pointing to more customers than some incumbent banks in the coming years the future seems bright, whether SoftBank is a part of it or not.

Axel Springer, Insider Inc.'s parent company, is an investor in Uber.

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