London Unicorn Watch: TransferWise

January 2015 saw London startup TransferWise became the highest profile startup in the capital, after it reportedly received a valuation of $1 billion at a funding round led by Andreessen Horowitz, a venture capital firm based in Silicon Valley.
Follow them here: @TransferWise

What is TransferWise?

TransferWise is a peer-to-peer international money transfer company that was co-founded by Estonian expats Taavet Hinrikus and Kristo Käärmann back in 2011. Before TransferWise Hinrikus had worked for Skype as their Director of Strategy, whilst Käärmann had worked as a management consultant for Deloitte and PwC.

After meeting through friends, TransferWise came about as their solution to the problems being experienced by people each and every time they used a money transfer service, bank or broker, i.e. losing a percentage of money when exchanging or transferring, hidden charges, foreign exchange fees etc.

TransferWise became the solution; an online system where peers could use each other to send money abroad; a direct swap of cash, minus all of the steep transactions fees. TransferWise charges a set fee for commission, which is 0.5% in the United Kingdom. The highest rate charged is when you send money to the Ukraine, and this is 3%.

The company also gives its customers the mid-market currency rate, which is the same level that banks buy at, but TransferWise does not add any markup. The company now sees approximately £500 million a month being moved and claims this would have saved about £22 million in fees to customers.

The two founders see it as incredibly important that the startup is as transparent and fair as possible, and it certainly seems to be that way. With over £3 billion having been transferred using its platform so far, it would seem that customers agree. 

Although this amount is still relatively small for the consumer international payments market, it has made the company stand out and has received attention from many banks and money transfer services, forcing them to make their prices a lot more competitive.

The investment

When TransferWise received their $58 million investment, it made the company one of the capital’s rare “unicorns”. It also made the company one of the rare few to have received such a large investment from Silicon Valley.

The London unicorn uses the same kind of investment strategy that Uber, the taxi startup perfected so well, i.e. loss-leading, venture capital-fuelled growth strategy. However, some have expressed concern with this approach, in the belief that it is incredibly risky, especially when the business is not yet profitable.

However, the fact that the company has received so many notable investors might just shut down the detractors. With investors such as VC firm Andreessen Horowitz’s co-founder Andreessen Horowitz and Peter Thiel, co-founder of PayPal, the company is well set up for success. The company also has Ben Horowitz, the other co-founder of Andreessen Horowitz sitting on their board.

What’s changed in the past year?

In short, the company has grown a lot larger!

When speaking of the growth the company has seen over the past year, Hinrikus stated: “Now we’re truly a global business with even bigger ambitions. We’re open in all of Europe, US, Australia, and a bunch of other things in the pipeline. Our headcount, we’re now 400 people; we were 40 people 2 years ago.”

Figures show that the startup is growing at a rate of 15-20% each month. Although it should be noted that even though Britain is TransferWise’s biggest market, their growth rate is slightly slower there. 

When it comes to the company’s accounts, data from Companies House shows that the company filed “Abbreviated Accounts”, which a company would only qualify for if they either had:

a) a turnover of £6.5 million ($10 million) or less;

b) £3.26 million or less on its balance sheet ($5 million);

c) 50 employees or less.

In simpler terms, they would have to be a small company to file these accounts.

When quizzed about the company’s profit making, the co-founders state that they are focussing on scale at the moment and that they will focus on profits later. For now the founders emphasis they are “building a global business. We’re operating in a very big market. We’re happy to invest in this for quite a while to come.”

Despite the valuation figure of $1 billion never actually being confirmed, when you consider the size of the global market TransferWise are tapping into, you can start to see why the valuation is indeed so high and why the company is now being seen as crucial to London’s emerging tech sector.

The future

TransferWise has seen a lot of growth over the past year, and this is obviously something that the company’s investors expect to long continue. The company plans to open in Japan, as well as Canada within the next six months and also has Asia in its sights for 2016. Each new opening obviously has its own costs, i.e. hiring a country manager and a team that speaks the local language, as well as an understanding of the country’s money transfer laws.

As for when the next round of funding will be Hinrikus says that they still have a lot of their $58 million left, with Käärmann adding that: “We can make it last for a long time, let’s put it this way. We’re investing smartly and making sure every $1 we invest makes the world better for our customers and our product better. If that keeps happening, we’ll have great returns from the investments we’re making today.”