Fintech Freetrade struggled to find new backers at the expected valuation

British stock trading app Freetrade failed to raise the new investment it sought at a higher valuation earlier this year, leaving it to turn to existing investors for funding in another sign of the crisis gripping start-ups.

Chief executive Adam Dodds said in May that the fintech had chosen not to seek a new valuation when it secured £30m in a convertible loan, mainly from existing backers.

However, Freetrade had months earlier signed term sheets with new investors for a funding round worth £700m, according to a copy of an investor letter seen by the FT.

The deal was shelved in January as tech stocks plunged, making investors wary of highly valued tech start-ups.

“In the advanced stages of this deal, the macro environment began to turn sharply and risk markets picked up. The agreement was not completed,” Dodds wrote in the letter, addressed to shareholders who participated in the company’s crowdfunding.

Freetrade declined to comment.

The failure to attract new investors to a higher valuation underscores the challenges as central banks tighten monetary policy, publicly traded technology companies plunge in value and easy money from venture capitalists dries up.

Swedish buy-now-pay-later startup Klarna, once Europe’s most valuable private technology company, was forced to cut its valuation from $46 billion in summer 2021 to $6.7 billion in July to secure new funding.

Freetrade earned its £650m price tag before the money in a crowdfunding round last November. “The valuation represented a c. 30x multiple on our annual revenue run rate, broadly in line with public market valuations at the time for consumer fintech companies on a similar growth trajectory,” Dodds said.

The company has raised money from individuals every year since it launched in 2016. Dodds said next week the company would let small backers join the loan deal it secured in May, which will eventually convert to equity.

The funding deal in May brought together existing investors, including £5m each from the two biggest backers, Left Lane and Molten, the letter said. The biggest check came from Israeli financial group The Phoenix, which is a backer of Left Lane, along with money from L Catterton and Capricorn.

Freetrade has since cut costs to preserve its cash pile. The company shed 15 percent of its workforce in June and has cut its marketing budget twice, after splashing out on advertising campaigns on the London Underground last year. Dodds said the company is “now on track” to reduce its cash spend to £1m a month, which is “significantly down from the start of the year”.

The start-up had £1.3bn under management at the end of August, up from around £1bn in November. It made £15.6m in revenue in the year to last month, up 30 per cent on the same time last year, Dodds told investors.