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N26: The Rise of a FinTechBrief Insights from PEF Research
PR
IVATE EQUITY FORU
M
JUSTUS-LIEB IG -U N IV ERSIT
ÄT
PRIVATE EQUITY FORUMAT JUSTUS LIEBIG UNIVERSITY
Brief Insights from PEF Research 2
FinTechs on the Rise
N26 GmbH (N26) is a Berlin-based FinTech
that tries to adjust retail banking to the
modern, mobile lifestyle of today’s custom-
ers. The number of FinTechs that challenge
the traditional financial service sector as it
has been for decades is increasing steadily
all over the world. Since the acceptance
and development of these actors has also
risen in Germany, FinTechs are now more
often true competitors to renowned banks,
insurances, or similar financial institutes
(Romanova & Kudinska, 2016). In the case
of N26, this is expressed in the recent ob-
tainment of a full banking license and the
surpassing of the one million customers
mark. Not only does this case reflect a mod-
ern and growing sector, but N26 also has
gained a lot of attention from the venture
capital (VC) industry. Since its founding in
2013, the company has raised more than
$215m in equity funds from different inves-
tors. The diversity of the involved investors
reveals characteristic types of venture cap-
italists (VCs) and their individual ap-
proaches.
The Case of N26
N26 (with its subsidiary N26 Bank GmbH) is
a direct bank specializing in offering its
banking services completely via a
smartphone app. Besides a free bank ac-
count that comes with a free credit card
and customer friendly conditions, N26
partners with other financial services pro-
viders. Thereby, the company offers its cus-
tomers a broad spectrum of services like in-
surances, foreign exchange services, or in-
vestments, all accessible via a mobile app.
Due to its mobile strategy, N26 operates on
a low-cost base with a streamlined organi-
zation and without the need for stationary
bank offices. Customers can deposit or
withdraw money at selected retail stores
like super-markets at no cost; advice and
PRIVATE EQUITY FORUM AT JUSTUS LIEBIG UNIVERSITY October 2018
N26: The Rise of a FinTech
Thomas Heyden & Niklas Poppelreuter
Brief Insights from PEF Research 3
N26: The Rise of a FinTech
support is solely provided online. The com-
pany is based in Berlin, Germany, and is
currently building up offices in New York,
USA and Barcelona, Spain.
The company, which can be classified as a
FinTech, was founded in 2013 under the
name Papayer GmbH in Vienna, Austria.
Originally, the founders Valentin Stalf and
Maximilian Tayenthal addressed teenagers
to provide them with a free, mobile based
bank account and a prepaid Mastercard.
Additionally, the possibility for them and
their parents to screen the financial activi-
ties in real-time via smartphone was avail-
able. The finding of limited sales possibili-
ties due to their niche product combined
with requests from persons out of their tar-
get customer group led them to perform a
major strategy change in 2014/2015. They
started Number26, as N26 was named pre-
viously, with the goal to simplify retail
banking and adjust it to the mobile lifestyle
of today’s potential customers of all ages.
Especially since the implementation of this
new strategy, N26 has experienced signifi-
cant growth. As of today, the company
states to have more than 1 million custom-
ers across 17 European markets processing
€1bn in monthly transactions and employs
over 430 people.
A big milestone was achieved with the offi-
cial licensing as a bank by the European
Central Bank and the Federal Financial Su-
pervisory Authority (BaFin) in July 2016. Be-
fore that, N26 had to partner with another
bank, namely the Wirecard Bank, to offer
some of their services. The licensing went
along with the rebranding as N26, replacing
the name Number26, and setting the
course for an integrated business model
and further growth. N26 is one of the first
startups to receive a full European banking
license. Besides being independent of a
partner bank, which generated flexibility
and cost advantages, N26 was also able to
offer additional products and services such
as credit options, savings, investment plans
and more. Being one of only two German
FinTechs with a banking license enhances
its positioning and allows them to fully
compete with traditional banks.
Traditional banking institutes are increas-
ingly challenged by FinTechs, as they offer
comparable services while being more flex-
ible and agile, thus keeping up better with
the challenges of digitization like adapting
to a mobile lifestyle. However, many cus-
tomers still ask for tailored solutions and
personal support, which can be harder for
digital- or mobile-only (or as N26 states
“mobile-first”) business models to fulfill. In
that sense, FinTechs like N26 face two
groups of competitors: The first group con-
sist of traditional banks and direct banks,
especially as they try to become more digi-
tal and mobile. The second are other
FinTechs that provide similar services.
N26’s close competitors are mainly found
in the non-German environment with the
exemption of the German “Fidor Bank AG”,
who offers online banking services in a sim-
ilar way and is also licensed as a bank. “Rev-
olut Limited” is a comparable competitor
from the United Kingdom, which has al-
ready raised funds to the amount of $336m
according to Crunchbase. “Simple”, as an
US-based counterpart, provides mobile-
only banking services and was sold to
Spain’s second-largest bank, BBVA, in Feb-
ruary 2014, for $117m.
Brief Insights from PEF Research 4
N26: The Rise of a FinTech
The business model of N26 and its close
competitors sets itself apart from tradi-
tional and many direct banks mainly by its
mobile orientation. A free bank account
with a free credit card is still common in
Germany and thus the conditions are not
unique. Furthermore, most banks, espe-
cially direct banks, offer smartphone apps
for their customers as well. Benefit for the
N26 customer may therefore arise due to
the larger range of services offered inside
their app, a modern layout and an intuitive
and quick handling. N26 states that their
mobile first approach is one of three main
unique selling points (USPs). Additionally,
the full European banking license allows
N26 to offer their services without a part-
ner bank, which enhances their possibilities
compared to direct competitors. By com-
bining modern technology, speed, and cus-
tomer orientation, together with the full
offering of a bank, N26 states to provide a
unique experience for their customers. Ac-
cording to their annual report of 2016, its
third USP is the scalability. They say that
scalability, which allows disproportionate
growth and quick changes, is limited in tra-
ditional banks by old IT-systems, inefficient
structures, and large administrative func-
tions. N26 should be able to outperform
large banks in this category.
The Financing Details
Like close competitors from other coun-
tries, N26 has also attracted many private
equity investors since its founding. In five
funding rounds, N26 has raised more than
$215m from renowned investors like Valar
Ventures, Axel Springer Plug and Play Ac-
celerator, Earlybird Venture Capital, mem-
bers of the Zalando management team,
and most recently Tencent Holdings Lim-
ited (hereinafter Tencent) and Allianz X. Af-
ter its latest funding round, N26 is valued
at approximately $750m, making it Ger-
many’s most valuable private FinTech at
the moment, according to Vertical Media
GmbH.
Such a high valuation should be based on
significant success factors. Hence, before
providing more detail on the current and
previous shareholders of N26 and their in-
vestments, the company’s performance
and positioning is evaluated. Financial re-
sults are, of course, a motive or at least a
criterion of many private equity investors
for investing in companies. However,
startups regularly make losses in their first
years after founding (Wang & Zhou, 2004).
This is also observable in the case of N26.
The first reliable financial data can be ex-
tracted from the annual report of 2016. For
2015, it states a net loss of approximately
€4.7m, even surpassed by a significant loss
of €14.7m in 2016 (Bundesanzeiger Verlag
GmbH, 2018). This may be the result of high
investments, especially to acquire new cus-
tomers and other measures like preparing
for the licensing as a bank. Therefore, it is
usual in the VC business that valuation is
most likely to be based upon the investor’s
expectations for a target’s future (Wang &
Brief Insights from PEF Research 5
N26: The Rise of a FinTech
Zhou, 2004). N26 has proved that it is capa-
ble of competing with traditional banks.
Additionally, its USPs help them to stand
out of its competitive environment.
Another possible explanation for an in-
creasing valuation over time might be the
investments of well-known and successful
investors, which act as a positive signal of
their trust in the target’s potential. In five
funding rounds, 19 individuals or compa-
nies invested equity in N26. Table 1 dis-
plays the details of each funding round, i.e.
the round type, date of its closing, involved
investors, the funding size of each round
and aggregated over time as well as a cal-
culation of the post money valuation. The
latter describes the implied value of a tar-
get, calculated using the raised funds in re-
lation to the shares granted to investors.
Round Round type Closed date Investors Size ($m)
Cumulative amount raised ($m)
Post money val-uation ($m)
5 Series C 03/19/2018 Allianz X, Greyhound Capi-tal Europe, Tencent Hold-ings
160 213.45 750
4 Series B 06/21/2016 Battery Ventures, HS In-vestments, Novel Trend Global, Offenbach Interna-tional, Rubin Ritter, Robert Gentz, David Schneider, Daniel Aegerter, and other existing sharehodlers
40 53.45 154
3 Series A 04/16/2015 Valar Ventures and other existing shareholders
10.73 13.45 26
2 Seed 06/19/2014 Earlybird Venture Capital, Redalpine Venture Part-ners, and other existing shareholders
2.72 2.72 9 - 10
1 Accelerator 09/05/2013 ImWind Group, Mr Mosen, Mr Dojacek, Mr Masoner
0.025 0.025 < 1
To begin with, Maximilian Tayenthal and
Valentin Stalf founded N26, or more specif-
ically its predecessor Papayer GmbH. They
were already supported by Axel Springer
Plug and Play Accelerator GmbH (hereinaf-
ter Axel Springer Plug and Play) in their ac-
tivities before and during the company’s
founding. Axel Springer Plug and Play as a
joint venture between Axel Springer SE and
the California-based Plug and Play Tech
Center, supports young companies and
provides them with several opportunities
like strategic alignment with experts, an of-
fice space or contact to VC investors. Addi-
tionally, their accelerator programs always
include a capital investment of $25k in ex-
change for a 5% holding of the company
shares (Axel Springer Plug and Play Acceler-
ator GmbH, 2018). Consequently, Axel
Springer Plug and Play held 5% of the com-
pany shares after founding in February
2013, the two founding managers 47.5%
1 Funding rounds of N26
Source: Bureau van Dijk, S&P Capital IQ, and Crunchbase
Brief Insights from PEF Research 6
N26: The Rise of a FinTech
each. Please Refer to appendix A for a de-
tailed disaggregation of the shareholder
structure.
In September of the same year, the first
funding round of N26 was established, rais-
ing another $25k. In VC it is common, that
a startup receives new capital in several
consecutive rounds rather than in one
transaction like a buyout. As table 1 re-
veals, the new investors were several busi-
ness angels: The CEO of the payment ser-
vice provider Concardis, Mr. Mosen, bank-
ing and investment professionals Mr.
Dojacek and Mr. Marsoner, as well as the
renewable energy group “ImWind”. The
amount was raised by giving away 11% of
the company shares, resulting in a post-
money valuation of around $250k. Axel
Springer Plug and Play maintained their 5%
of shares, which could have been due to a
contractual anti-dilution clause.
The first VCs joined the shareholder base
during funding round 2 in June 2014, which
is still classified as a seed-funding. This
demonstrates a usual process in VC, in
which business angels and specialized ac-
celerators or incubators are the first to in-
vest in startups, before renowned VC firms
get involved. Earlybird Venture Capital
Management GmbH & Co. KG (hereinafter
Earlybird) and Redalpine Venture Partners
AG (hereinafter Redalpine) both regularly
provide seed and early-stage VC, mainly for
tech-related companies. Other similarities
are investments in technical healthcare
companies and the structuring of their in-
vestments via funds. Besides Redalpine’s
initial acquisition of 8.0% of N26’s shares,
they are for example also engaged in the
factoring provider Finiata or the social plat-
form Jodel. Earlybird, who led the funding
round by acquiring a stake of 17.4%, is one
of the most renowned and largest VC firms
in Germany. With more than 40 employ-
ees, they have already invested in more
than 150 ventures since their founding.
With a tech and healthcare focus, they are
a very good example for a typical VC firm,
since those are the most targeted indus-
tries within VC. By raising $2.72m, the im-
plied valuation of N26 increased to a value
between $9m and $10m after this funding
round.
The third round was closed in April 2015
with N26 already being active on the mar-
ket with its products, thus being classified
as the series A financing. Together with ex-
isting shareholders, Redalpine and
Earlybird, Valar Ventures invested $10.73m
into the company, leaving this investor
with 14.4% of shares. The VC company
Valar Ventures was founded by the well-
known entrepreneur Peter Thiel, who co-
founded PayPal and regularly invests in
successful startups via different own pri-
vate equity funds. As a prominent example,
Mr. Thiel was the first external investor
who provided equity to Facebook. Since
N26’s business model had proved itself
over the years, e.g. by acquiring more cus-
tomers, it is not surprising that the post-
money-valuation increased to $26m.
However, a much more significant increase
went along with the fourth funding round
(Series B) in June 2016, raising $40m, im-
plying a valuation of $154m. In that way,
the value of N26 multiplied itself by 15 dur-
ing the two years from seed to series B.
With this fourth round, eight new investors
joined the shareholder base: The members
of the Zalando SE executive management,
Mr. Ritter, Mr. Schneider and Mr. Gentz
(each acquiring 0.33%), the founder of a
Swiss-based family office, Mr. Aegerter
(1.6%), and the VCs HS Investment (7.8%),
Battery Ventures (0.9%), Novel Trend
Brief Insights from PEF Research 7
N26: The Rise of a FinTech
Global Limited (4.9%) and Offenbach Inter-
national Limited (3.2%). The variety and
quantity of the investors as well as the de-
cent amount of $53.45m in aggregated
funds raised reflect N26’s attractiveness
from an investor’s perspective. The
broader customer base of around 200
thousand people and the licensing as a
bank, which took place around this fourth
round, proved the potential of their busi-
ness model.
Just recently, in March 2018, N26 closed
another funding round, its series C. The two
lead investors Allianz X GmbH and Tencent
Holdings Limited provided capital to the
amount of $160m together with Grey-
hound Capital Europe LLP (hereinafter
Greyhound Capital), while still only obtain-
ing a minority stake of 6% each in the case
of the lead investors and 2.8% for Grey-
hound. As already specified, this results in
a post-money valuation of approximately
$750m. The immense valuation leap can be
explained by a very positive development
of N26 since its series B financing, with cus-
tomer numbers surpassing one million, on-
going internationalization and the ex-
panded range of services combined with
utilized advantages of its bank status. Addi-
tionally, renowned private equity inves-
tors, also being a sign for an established
business model and a promising invest-
ment opportunity, already owned 64.1% of
the company’s shares. According to N26’s
management, the raised funds will mainly
be used to strengthen current markets and
staff as well as to enter the US and UK mar-
kets in 2018 – measures that could gener-
ate significant growth. Like many of the in-
vestors already involved, Greyhound Capi-
tal invests in high-growth companies in
early stages, focusing on technology firms.
With Tencent and Allianz X, another type of
VCs joined N26’s financing, i.e. corporate
VC (CVC). China based Tencent is a multi-
billion-dollar revenue generating company
that describes itself as a provider of inter-
net value added services. It is known for its
social networks and instant messaging ser-
vice like Weixin/ WeChat. In addition to
that, Tencent is a very active VC investor.
They regularly provide growth or early-
stage capital to companies having web-re-
lated business models. Since January 2018,
they already participated in 19 M&A trans-
actions internationally as a buyer. Allianz X,
as the other lead investor of this round, is
the CVC unit of the Germany based insur-
ance group, Allianz SE. They invest in digital
ventures that are of strategic and financial
interest for the Allianz group. In that, they
address topics like mobility, health, or
wealth management. N26 is one of 16 in-
vestments they have already made. Re-
search suggests that the involvement of a
CVC in a startup might enhance the possi-
bilities to gain new partners and most im-
portantly more customers due to a strong
and established company name at their
side (Maula et al., 2005). Therefore, it will
be interesting to evaluate the performance
and development of N26 after its series C
funding.
Brief Insights from PEF Research 8
N26: The Rise of a FinTech
Will N26 go public?
At the moment, no reliable statement has
been made regarding the plans of addi-
tional funding rounds. The company man-
agement is confident to reach a profitable
level within the next two years with the
help of the raised funds, which could make
them a suitable IPO candidate. However,
another funding round might be possible
beforehand. An IPO would be an additional
funding opportunity for N26 and an exit
possibility for the current shareholders.
The way of exit via an IPO is often favored
in VC business.
Another interesting factor and a distinction
from many late stage buyouts is the devel-
opment of the shares held by Valentin Stalf
and Maximilian Tayenthal compared to the
other shareholder groups since the com-
pany’s founding. Their combined stake in
N26 decreased from a strong majority of
95% to only 24.7% in less than five years,
contrasting a picture often found in more
traditional family firms, where the shares
are typically held entirely by family mem-
bers or heirs for decades before the first
contact with equity investors is made
(Wang & Zhou, 2004). Nevertheless, it
might be possible, that N26 would not have
developed as well or reached such a high
valuation without the involvement of ex-
ternal investors, making the founders mi-
nority stake worth over $180m.
Overall, the financing process of N26 looks
like a textbook example. Especially the val-
uation, which is highly dependent on signs
of potential (i.e. customer base, banking li-
cense) rather than financial results, seems
typical (Wang & Zhou, 2004). Furthermore,
the development of the involved investors
follows a pattern also found by Maula et al.
(2005), as the participation of VC compa-
nies helps to attract more investors like
other VC firms or CVCs. In the case of N26,
the shareholder base broadened signifi-
cantly during and after the first VCs,
Earlybird and Redalpine, joined the pro-
cess. They also invested much earlier than
the two CVCs. A possible explanation is the
broader network of VC firms and the finan-
cial goals pursued, compared to a more
strategic and individual approach of CVCs.
Obviously, once N26 manages to establish
its first office in the US after their opening
in Spain, further capital will be required to
maintain high growth numbers.
Brief Insights from PEF Research 9
N26: The Rise of a FinTech
References
Bundesanzeiger Verlag GmbH. (2018). N26 GmbH - Rechnungslegung/ Finanzberichte.
Maula, M., Autio, E., & Murray, G. (2005). Corporate venture capitalists and independent venture cap-
italists: What do they know, who do they know and should entrepreneurs care?. Venture Capital: An
International Journal of Entrepreneurial Finance, 7(1), 3-21.
Romanova, I., & Kudinska, M. (2016). Banking and Fintech: A Challenge or Opportunity? In Contempo-
rary Studies in Economic and Financial Analysis: Vol. 98. Contemporary Issues in Finance: Current Chal-
lenges from Across Europe (Vol. 98, pp. 21–35). Emerald Group Publishing Limited.
Wang, S., & Zhou, H. (2004). Staged financing in venture capital: moral hazard and risks. Journal of
Corporate Finance, 10(1), 131–155.
Brief Insights from PEF Research 10
N26: The Rise of a FinTech
Appendix
Shareholder Founding Round 1 Round 2 Round 3 Round 4 Round 5
Company management 95.0% 84.0% 59.7% 47.1% 35.9% 24.7%
Valentin Stalf 47.5% 42.0% 29.9% 23.6% 18.0% 12.3% Maximilian Tayenthal 47.5% 42.0% 29.9% 23.6% 18.0% 12.3% N26 Beteiligungs UG & Co. KG 0.1%
Accelerator 5.0% 5.0% 5.3% 4.2% 3.2% 2.1%
Axel Springer Plug & Play 5.0% 5.0% 5.3% 4.2% 3.2% 2.1%
Business angels 11.0% 9.6% 7.4% 6.1% 4.4%
Celeus (Robert Gentz) 0.3% 0.2% ImWind Group 2.3% 5.0% 3.9% 2.0% 1.4% La Plata (David Schneider) 0.3% 0.2% Daniel Aegerter 1.6% 1.4% Marcus Mosen 2.9% 2.5% 1.9% 1.5% 1.0% Michael Dojacek 2.9% 2.1% 1.6% Rubin Ritter 0.3% 0.2% Thomas Marsoner 2.9%
VC firms 25.4% 41.3% 54.7% 68.6%
AllianzX 6.1% Battery Ventures 0.9% 0.6% Earlybird Venture Capital 17.4% 19.0% 17.2% 12.4% Greyhound Venture Capital 2.8% HS Investments 7.8% 15.2% Novel Trend Global Ltd. 4.9% 4.4% Offenbach International Ltd. 3.2% 3.0% Redalpine Venture Partners 8.0% 7.9% 6.2% 4.6% Tencent Holdings 6.1% Valar Ventures 14.4% 14.5% 13.4%
A Shareholder structure after each funding round of N26
Source: Bureau van Dijk and S&P Capital IQ
Brief Insights from PEF Research 11
N26: The Rise of a FinTech
About the authors:
Thomas Heyden is a research associate and Finance Ph.D. student at the Chair of Banking & Finance
at Justus Liebig University Giessen (JLU), Germany, and an active member of the Private Equity Forum
at JLU. He studied Economics and Mathematics in Giessen and Darmstadt, Germany, and holds a Mas-
ter’s degree in Economics, majoring Financial Markets and Institutions.
E-Mail: [email protected]
Niklas Poppelreuter is a Master’s student of Business Administration, majoring Strategy and Finance
at Justus Liebig University Giessen (JLU), Germany. Additionally, he works as an M&A consultant at
Giessen-based advisory boutique Sonntag Corporate Finance, advising on mid-market M&A transac-
tions. He holds a Bachelor’s degree in Economics from Johannes Gutenberg University Mainz, Ger-
many.
E-Mail: [email protected]
Research publication from Private Equity Forum at Justus Liebig University (JLU). This paper is for information
purposes only and not intended for commercial use. Private Equity Forum at JLU is an officially recognized non-
profit organization connected to the Chair of Banking & Finance at JLU. The views expressed in this paper are
those of the authors.
Photo on front page by N26 GmbH
Version as per October 2018.
© 2018 - Private Equity Forum an der Justus-Liebig-Universität e.V.