Challenger bank Judo has raised $400 million in the biggest individual private funding round by an Australian start-up, making its founders multimillionaires on paper.
The equity raise is record-breaking when combined with Judo’s $140 million raise last year and values the bank at $1.5 billion to $2 billion over the next two years.
It combines follow-on investment from Judo’s existing shareholders, including OPTrust, the Abu Dhabi Capital Group, Ironbridge, SPF Investment Management and the Myer family with a series of new institutional investors including Bain Capital Credit and Tikehau Capital.
Judo launched last year looking to tap into the shortfall in lending to small and medium-sized businesses and was granted a full banking licence in May this year.
The bank is on track to have lent $1 billion by the end of the calendar year.
Following the latest funding round, international investors hold around a 50 per cent stake in the business, with local investors holding 35 per cent and Judo’s 140 employees, including co-founders Joseph Healy and David Hornery, holding the remaining 15 per cent.
Mr Healy and Mr Hornery would not confirm their shareholding but on a conservative estimate at 10 per cent of the total shareholdings, a $1.5 billion valuation puts their personal wealth at $75 million each.
We are delighted with the investors but it is just surprising to have Australian institutions failing to participate as their international cohort have. [David Hornery]
The pair are not typical tech entrepreneurs aged 53 and 57 and starting Judo after successful careers as executives at the National Australia Bank.
Mr Hornery said at times their startup credentials have been questioned, with the pair told they were “no spring chickens” when they launched Judo, but the raise shows investors are prepared to back a different type of start-up.
“We have a very clear proposition to small business in Australia and a compelling investment case but when an investor looks across the table, at least half the question is ‘is this the team that we can invest in?” he said. “Not spring chickens is correct but it comes with the experience and perspective to execute this.”
Mr Hornery said Judo’s relationship-focused approach had been “materially lacking” in the market for many years.
“The reality of the service proposition in the market today is it is very much ‘How much is your house worth? I will lend to you against that’,” he said. “It is a very industrialised approach. We have the bankers who have the capabilities, the intents and the skills to form those relationships that small business really screams out for.”
Mr Hornery said Judo’s proposition is “resonating mightily” with the small business community and said its customers include some people denied funding by the major banks.
“A lot of them are moving across to us from the bigger banks as they want consistency in the proposition delivered to them and in other cases they are tremendously worthy businesses that just don’t fit the cookie cutter.”
Mr Hornery said when combined with the wholesale debt lines secured from Credit Suisse and Goldman Sachs the investment adds “further and substantial depth” to Judo’s provision of funding to Australian small and medium businesses.
However, he said the lack of local participation in the latest raise was disappointing, with the majority of investment coming from international sources.
“It is an Australian business focused on Australian SMEs,” he said. “We are delighted with the investors, but it is just surprising to have Australian institutions failing to participate as their international cohort have.”
Access to finance has been identified as the biggest barrier to small business growth by small business ombudsman Kate Carnell who is launching a Business Funding Guide for advisers and operators on Monday.
Ms Carnell said the major four banks used to provide 85 per cent of business lending but have really backed out of providing a full suite of financial options to businesses.
“The challenger banks are a fantastic addition to the market but they are a very small amount of the market,” she said. “It is also true that a lot of accountants are unaware of them. We very much hope they grow.”