New unicorn in the startup scene: Berlin fintech emerges from the shadow of N26

New unicorn in the startup scene
Berlin fintech emerges from the shadow of N26

By Caspar Tobias Schlenk

Since Mambu has provided the technology for the smartphone bank N26, the startup has been an insider tip among investors. That changed when the company recently became a unicorn. Now it is sure to attract the attention of the international tech scene.

Only ten minutes' walk from each other, they worked on their joint breakthrough, near Berlin's Alexanderplatz. And yet the companies could hardly be more different: N26 is the well-known smartphone bank with more than five million customers, many conference appearances by the founders, newspaper articles and a large poster on the house wall. At the same time, the software provider Mambu has been working on its own success story behind the bank.

Managing Director Eugene Danikis

Ever since Mambu provided the banking technology for N26 and other up-and-coming fintechs, the company has been an insider tip among startup investors. Years ago, Bessemer Ventures, one of the most traditional donors from Silicon Valley, took part. Since Thursday, Mambu has been attracting the full attention of the international tech scene: In a financing round, the company raised 110 million euros, the prominent venture capitalist TCV has stepped in and values ​​the company at 1.7 billion euros. As Finanz-Szene calculated, the goodwill at the last funding in early 2019 should have been around 150 million. That would be a huge leap in rating.

After a long development phase, Mambu is now benefiting from the nature of its business. After the two founders Frederik Pfisterer and Eugene Danilkis met during their studies, they developed the technical infrastructure for microfinance providers in Latin America and Africa as early as 2011. Over the years, the company expanded its software and now provides the cloud-based core banking system from N26 and Check24, the business banking hope Tide, and established providers such as Santander.

The incredible strength of corporate software

Once a customer has been won, they will stay for many years – the so-called lock-in effect is high. Because it would be incredibly time-consuming to change the core banking system. Mambu will earn with increasing usage: If a fintech like N26 grows, the income also increases. So it fuels its growth with new customers and the higher sales of old customers. Established banks need to innovate their technology – at the same time, new fintech players are starting all over the world, potential customers for Mambu. With the company operating globally – with 14 offices from Sydney to Miami – there are almost endless opportunities for growth.

In the meantime, around 90 percent of sales should come from the recurring monthly fees, according to the company's environment (otherwise Mambu will earn, for example, from setting up the core banking technology). The business with this revenue structure corresponds to the so-called software-as-a-service providers – cloud-based software companies are incredibly popular with investors.

Annual Recurring Revenue (ARR) is used as the basis for their assessment. With the key figure, you take the current monthly sales and extrapolate them into the future, because the companies assume that customers will not leave. In a heated market, it's not uncommon for investors to rate companies at 10 times the ARR. Recently, startup funders invested in the Hopin event platform for a hundredfold ARR valuation ($ 20 million in sales and 2.1 billion in valuation). This shows what is possible for goodwill in the market environment. Mambu falls exactly into this grid – also because the bounce rate (corporate customers who quit) is very low due to the lock-in effect. It is not known how high the turnover is at Mambu. However, it should be in the high double-digit million range. The fintech serves 20 million end customers via its platform, as it reports.

Mambu stands for another fintech trend. Creandum partner Simon Schmincke recently analyzed in a Forbes article that the rule used to be that a company had to "own" the customer. It is now okay for fintechs to be "the backbone" for other providers. The technology of platform and infrastructure providers is increasingly making it possible to offer fintech products to companies from outside the industry.

The early investors are the winners

So far, Mambu has focused on financial service providers as customers who also have a corresponding license. But it is conceivable that Mambu will also open its product to other companies that want to penetrate the segment. Check24 is a first example of this, the comparison portal opens up an additional source of income with the banking business.

In the slides in front of investors, towards the end of the presentation, there is usually a large expansion plan with a world map – "for the growth fantasies" of the investors, as it is called in the industry. In reality, moving to other countries often turns out to be extremely complicated because market conditions differ greatly. There are also different regulations for fintech companies.

Mambu doesn't have to go this route because it has been running an international business since it was launched (customers take care of the regulation). The first partner was a Mexican bank. The company said it plans to double its team from 500 to 1,000 employees in the coming months. Mambu will invest a lot in local sales and customer service in the individual offices.

As with every financing round, Mambu and CEO Danilkis now have to prove themselves after the high rating. The winners already include the company's early sponsors, including the Berlin software VC Point Nine (which also joined Revolut early on) and Commerzventures. Apart from Mambu, Commerzbank has some strong fintech bets in its portfolio with its venture capital arm. These include the Etoro trading platform, which will soon be listed on the stock exchange. Mambu is now also one of the major value drivers in the portfolio.

This text was first published by Finance Forward.

. (tagsToTranslate) Start-ups (t) Fintechs