Is Starling gearing up for an IPO?

Welcome to London Tech Weekly. Each week, we’re going to highlight a startup or VC firm in London that’s doing cool shit. And see some of the deals that’s happened right here in London in the past week. If you’re looking for something to do, check out my pick at the end.

We may soon have another tech IPO in London. And it could be Starling Bank. They’ve published their 2024 annual report and the numbers look good. So let’s have a look at what they do and if there are any hurdles in the way…

Revolut and Monzo may seem like the golden children on UK FinTech. They have exciting brands and rapid user growth. But don’t forget about Starling, who don’t have flashy cards or offer crypto services. What they do have though is profit.

Starling have recently posted their 2024 annual report for the financial year ending March 31st. And it’s impressive. User growth is up 17% YoY and revenue and profit are both up 50%. Wow. £682m in revenue and £301m in pre-tax profit. Here’s the crazy thing - Monzo had £880m in revenue but only £15m in profit. So Starling’s margin (44%) is 22x that of Monzo’s (2%). Quick maths.

This is probably due to work Starling have done lately to reduce their non-staff costs. Unit running costs have gone down £15.83 in FY22 to £7.44 in FY24. That’s some serious efficiency found.

In 2014, when they were founded, Starling had nothing. Unlike other big banks with huge infrastructure and decades old code moving money around, they had to start from scratch. They were cloud-native from day one and helped the regulator write its framework for banks using cloud. Cloud-native made scaling much easier, since there was no need to fork out up-front on servers that may never serve users.

It’s these sort of stories that remind you of how important AWS is to the startup ecosystem. And how it’s helped forge startups across all industries.

But back to Starling.

Initially, Starling offered just a current account with no travel fees. Then came business banking. Then came business loans. Then came customer loans. And then came BTL (buy-to-let) mortgages.

That’s right, Starling do mortgages. In 2021, Starling bought Fleet Mortgages, a BTL lender. At the time, it had £1.75b in mortgages under management and that’s now grown to £2.3b. These mortgages offset Starling’s government-attributable loans lending as a share of lending from 28.8% to 17.7%. More on that later.

Remember how Starling started from scratch, so they had to build a cloud-native banking engine? Well, they’re now selling it. Engine by Starling signed two customers - Salt Bank in Romania and AMP in Australia and NZ. It’s treated as a subsidiary of Starling, complete with its own executive team, but it’s an example of productising strengths and finding more ways to make money.

So Starling have both current and business accounts with large numbers, a strong lending business and a SaaS business. Surely an IPO is coming?

Well, where it may be tricky for them is in the government lending mentioned earlier.

When Covid hit, the UK Government introduced the Bounce Back Loan Scheme (BBLS). It was a £20,000 - £50,000 loan with low interest rate offered by banks, but guaranteed by the state. And became the perfect target for fraud. People would have businesses, take out a loan, take the money and wind down the business. No problem for the bank though, the state paid for it. Or so it seemed.

Starling had few checks for people taking out BBLs, maybe because they thought big daddy government would help. Unfortunately for them, there was a step they missed. The Government required Starling to take legal action against the companies first. So now they’re setting as £14m to pay for bad loans that The Government may never guarantee.

But this isn’t going to be a permanent problem for Starling, just a little bump in the road for them on their journey to IPO. Because surely, that’s where they’re going? Their brand is getting bigger and their growth to me suggests an acquisition by a larger bank isn’t on the cards.

And how incredible would it be to see them IPO? Imagine them listing in London. A new bank, a neobank, founded in the 2010s, listing on London’s stock exchange. What a sign that’d be for how London is the FinTech capital of the world.

What happened last week?

• SurrealDB, a multi-model database, raised $20m.

• Finbourne Technology, a FinTech for investment management solutions, raised £55m.

Harry’s pick

As a strong believer in democracy, I can’t stop banging on about how there’s an election coming. In over a week, we will know who will be leading our country. And if you’re registered, you get a say.

It’s understandable if you’re not fully informed, politics can be dull. With the 24 hour news cycle too, it’s overwhelming keeping up with it all. But if you want to keep yourself informed, my friends at Form Ventures have a guide to the party manifestos. You can also check out Public First’s as well.