eToro secures $250 million at $3.5 billion valuation after scrapping SPAC, sees slower growth

Image credit: Yuichiro Chino/Getty Images

After scrapping plans to go public via a SPAC at a $10.4 billion valuation in 2022, trading platform eToro has secured $250 million in funding at a $3.5 billion valuation.

The money is not a typical equity round: it comes in the form of an Advanced Investment Agreement (AIA), eToro founder and CEO Yoni Assia told TechCrunch. The company had secured AIA in early 2021 as a sort of backstop from current backers in case its proposed SPAC fell through. Investors include ION Group, Social Leverage, SoftBank and Spark Capital.

An AIA is an agreement where an investor (or investors in this case) pays up front for shares that will be awarded at a later date, sometimes at a discount, according to Ken Smythe, founder and CEO of Next Round Capital Partners – a capital . markets and VC secondary firm. The company agreed with investors, according to eToro, that the investment would be converted two years after signing the agreement based on the following conditions: that it would not pursue the SPAC transaction or raise additional capital.

The SPAC apparently never took place; and the company hasn’t raised an equity round since 2018. Indeed, when the SPAC deal closed last July, Calcalist reported that eToro was “in advanced negotiations for a private financing round for between $800 million and $1 billion, at a valuation of $5 billion.” The company denies that it tried to raise money in a traditional round last year. And it said the shares awarded under the AIA were not used at a discount since the last increase was several years ago and “there was no recent reference point of historical transactions where a discount could be applied.”

Still, the company had a series of setbacks surrounding the SPAC that questioned higher valuations. In March 2021, the Tel Aviv, Israel-based company had announced that it would go public via a merger with Betsy Cohen-endorsed FinTech Acquisition Corp. V in a $10.4 billion deal. Then in January 2022, the company’s the valuation was cut by over 15% to 8.8 billion dollars. In early July, the two parties mutually agreed to terminate the deal after the deadline for eToro to go public under the SPAC scheme expired on June 30, 2022. According to Calcalist, the merger was partially called off due to “regulatory changes regarding SPACs and companies involved in cryptocurrencies, which accounted for a large part of eToro’s growth in recent years.”

The company’s latest funding follows a challenging and busy year for the 16-year-old fintech company – which is a competitor to Robinhood in the US. Its funded accounts stood at 2.8 million at the end of 2022, up modestly from 2.4 million in 2021 but still significantly higher than the 1 million it had in 2020. In particular, eToro saw a significant drop in commissions, Assia said was “equal to revenue” at $631 million in 2022, down 49% compared to 2021 and up just 5% from the $605 million in revenue it achieved in 2020.

The sharp decline was largely due to a drop in crypto commissions, according to Assia.

This means in practice that eToro has only grown slightly in terms of revenue since 2020. It also means that it is growing at a much slower pace than projected. At the time of the SPAC filing, the company projected revenue of nearly $1.2 billion in 2022.

The company struck an upbeat note regarding its uneven growth: “At eToro, we need no reminder that markets are cyclical. The diversified nature of our multi-asset product offering ensured that commissions from equities and commodities partially offset the decline in commissions from cryptoassets in 2022,” eToro CFO Meron Shani said in a written statement. “It is also worth noting that we was not affected by liquidity concerns that plagued many in the crypto industry.”

Currently, the commissions by asset class consist of: 48% stocks, 27% commodities, 19% cryptoassets and 6% currencies. Today, eToro has 31.4 million registered users (a cumulative number that includes everyone who has ever opened and maintained an eToro account), operates in over 100 countries and has $5.8 billion in assets under management. eToro is currently EBITDA profitable, according to Assia, and has generated over $400 million in profits over the past five years. (For reference, the company reported EBITDA worth $114 million in 2017, and $193 million in 2018 in its SPAC filing.)

During the year, eToro says it – among other things – expanded its US investment offering to include US stocks and ETFs, completed an expansion of eToro Money across the UK to the entire EU, bought Gatsby – a commission-free options and stock trading app aimed at younger traders – and portfolio management platform Bullsheet.

It was also implemented a reduction in the workforce of about 6%, or about 100 people, in July and cut marketing costs. It currently has around 1,500 employees.

Today, over two-thirds of customers are located in Europe and the UK, 13% in Asia-Pacific, 12% in the Americas and 4% in the Middle East and Africa. Last year, it secured approval in principle to operate as a broker in Abu Dhabi.

Image credit: eToro

EToro’s last formal raise was in March 2018 when it secured 100 million dollars to a value of 800 million dollars. At the end of 2020, it was reportedly valued at $2.5 billion after an undisclosed US-based firm bought about $50 million of its shares in the secondary market from former investors and employees. (Secondary market transactions do not typically generate valuation markers that we use for analysis; however, in this particular case the data point is useful.)

Despite the company’s recent struggles, Assia claims the company has seen its customers “HODL [hold on for dear life] around crypto,” buying and holding more crypto by the end of 2022. He added that so far this year, the company has seen “an improvement” in total commissions and profitability compared to the previous quarter “with higher engagement and trading activity” from its users.

EToro plans to use its new capital to grow the business and invest in its product globally and “in key markets,” Assia said. It also intends to scale its operations in the US

One thing it didn’t have to worry about? The Silicon Valley Bank Crisis. EToro has no significant funding exposure to the bank, the executive said.

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