Judo Bank reveals backers behind massive $284 million funding round, amid neobank competition concerns

Small business-focused neobank Judo Bank has confirmed it has settled a massive $284 million capital raise, first announced late last year, which values the business at about $1.6 billion.

The bank has also revealed further information about the investors themselves, highlighting positive news at a time of rife speculation about the future of this industry in Australia.

Some 60% of the fresh funding came from new domestic and international investors, Judo has now confirmed, including UniSuper, Magnetar Capital and Moore Strategic Ventures.

At the same time, more than 70% of existing investors contributed again in this round.

According to Judo co-founder and co-chief David Hornery, the business is now profitable, and has increased its business lending activity by some 80% since March 2020.

The raise followed a $230 million cash injection in May last year, which propelled Judo to unicorn status.

But, it also came during a time of uncertainty for the neobank sector in Australia, in general, announced barely a week after Xinja declared it was exiting the banking space and handing back its authorised deposit-taking institution (ADI) licence.

Then, in January, NAB announced plans to acquire 86 400, in a deal that will see the neobank combined with the big bank’s own digital offering.

For Hornery, Judo’s cash injection, and the investor breakdown, shows confidence in the business he’s building. To an extent, it also shows there’s confidence in the sector more broadly too.

Right from the beginning, Judo’s capital raises have been underpinned by strong relationships with a broad range of investors, he tells SmartCompany.

Often, when a new investor comes on board, they’ve already been in conversations for two or three years.

While some investors have the risk appetite to participate in the first round, others want to see the business hit the targets they set for themselves, and deliver what they promised as they progress, Hornery notes.

“They’ve observed our growth, they’ve got to know our leadership team and they’ve seen us hit all the benchmarks,” he adds.

The fact that investors of this size are jumping on board now, is “just testament to the fact that what we’re continuing to deliver generates a level of confidence”.

Competition breakdown?

The jury still seems to be out as to whether the Aussie neobank scene might face more hardship in the coming few months.

Xinja cited the COVID-19 pandemic and a difficult capital-raising environment as a key reason for the breakdown of its banking business. A cut in interest rates also meant it was unable to maintain its competitive Stash saving account rates.

But, while the Australian head of European player Revolut Matt Baxby has raised concern that losing independent players will be bad for competition, Volt Bank founder Steve Weston has claimed the future of Aussie neobanking “has never looked brighter”.

Hornery concedes that both in a local context and globally, “the most sustainable way of driving reform in any industry segment, financial services included, is through the introduction of competition”.

But, Judo started its life as a small business lender, before expanding into other banking services. It’s still competing, primarily, with other lenders, not with consumer banks and not with the other neobanks.

That’s what sets it apart in all this, Hornery says.

“There is still a strong belief in the viability of serious competitors in this space, and there’s plenty of capital to back them when they have the right proposition.

“The value of that kind of competition for the SME community is very high.”