Payments fintech Airwallex has closed a monster $US160 million ($250 million) capital raise, despite the COVID-19 pandemic putting pressure on venture capitalists’ hip pockets.
The round values the business at $US1.8 billion and comes less than 13 months after it cracked the lauded $US1 billion unicorn milestone.
New investors ANZi Ventures (ANZ Bank’s investing arm) and Salesforce Ventures joined the company’s existing investors, including DST Global, Tencent, Sequoia Capital China, Hillhouse Capital and Horizons Ventures, in buying into the round.
Airwallex chief executive Jack Zhang told The Australian Financial Review less than half of the raise was locked away in January, with the remainder completed during the COVID-19 downturn.
“It’s been a very stressful funding round. It was a tough time and we were worried that there could be changes … but fortunately we managed to close it,” he said.
“We didn’t have to adjust the valuation at all. There were no conversations about that.
“But we were right in the middle of this, trying to close the funding round, and it’s hard to lock in a budget until you see the money. There was a lot of back and forth scenario simulations looking at what would happen if we didn’t close [the round], only closed a portion of it, or closed the whole thing.”
The equity raise is one of the biggest by an Australian start-up on record, dwarfed recently only by neobank Xinja’s $433 million cash injection from a Dubai investor. However, Xinja’s raise was split into tranches, with the fintech receiving $160 million upfront.
Airwallex’s raise equals the $250 million raised by Campaign Monitor in 2014.
While the company had no trouble getting the raise away, Internet DealBook figures reveal there was a 75 per cent fall in the number of local VC deals in March, compared to 2019.
Mr Zhang said the business had extended the size of its raise from its initial $100 million to $150 million target to $160 million in light of the COVID-19 outbreak.
Some smaller investors who had been keen to participate also had to withdraw their interest, as they were not able to close their own fund’s rounds when limited partners pulled back.
“We were fortunate that our revenue and processing volumes haven’t been significantly impacted. There’s been … about a 15-20 per cent drop – but that’s nothing crazy compared to those with 50 per cent drops,” Mr Zhang said.
Services to expand
The company was founded in late 2015 by Mr Zhang, three University of Melbourne friends – Lucy Liu, Jacob Dai and Ki-Lok Wong – and Max Li, his former partner in a Docklands coffee shop. It started out focused on providing businesses with a cheaper, faster way to make cross-border payments.
Its services have since expanded to include bank accounts, borderless cards (provided in partnership with Visa) and a suite of application programming interfaces. It also provides payment services for domestic transactions, as well as international ones.
Part of the capital raised will go towards funding an expansion into payment acceptance gateways, which will make it a competitor to Stripe.
Mr Zhang said his big vision is for the business to be an end-to-end payments platform, which will form part of any modern businesses’ tech stack.
“We’ve been investing in a payment acceptance product for the last two years and we will launch it in the next month or two,” he said.
“The biggest piece for us is to use the data we collect wisely and have a data product in partnership with another company to do data-driven lending to improve the cash flow of small businesses.
“We want to look at providing a high-yield interest rate product … that allows customers to withdraw at any time, but when the money stays there, they’ll get a rate similar to a term deposit from a bank, or higher.”
The company, which processes about $10 billion of transactions annually, has raised $US360 million since 2015.
Mr Zhang’s next big goal is to hit $US100 million in revenue, a milestone he expects to achieve in the short term. Once the business has hit this point it will have the ability to be cash flow positive if it chooses, he said.
“It’s a substantial milestone for us and it’ll mean if we want to list, we can at any time. Not that we will, but I’d like to have that freedom,” he said.
Acquisitions in the pipeline
In addition to building out its product suite and continuing to expand internationally, Airwallex intends to use a chunk of the funds for acquisitions.
Mr Zhang would not reveal any details, but said there were two deals in the pipeline which he hoped to close soon.
The deal was the first investment for Salesforce Ventures in a Victorian company, since launching a local arm of the fund in 2019. With $50 million set aside for the region, it has made seven investments (including Airwallex) to date.
Salesforce Ventures Australia head Rob Keith said the fund believed the convergence of payments and commerce would be key to customer experience.
“We believe the payments industry is an attractive market with attractive secular trends including the transition from cash to card, the switch to online commerce, growth of mobile payments and e-commerce,” he said.
“We have gotten to know Jack, Lucy and the executive team over the past six months and are incredibly excited about the mission and vision they have for the company.”