Bit2me completes its new funding round, albeit with downward readjustments. The Spanish platform buckles an expansion, for which it attracts Investcorp, a Bahrain-based alternative investment giant, as the leader. Telefónica also enters months after leaving its irruption on hold after the outbreak of the ‘FTX case’ and proposing a smaller injection than initially planned. In total, 14 million euros were raised, also contributed by other investors. The startup seeks to match this year the 13 million euros of revenue registered during the past year.
September 2022 Chema Alonso, head of Innovation, Data, Platforms, Products and Digital Services of the group, was one of the main supporters. He planned to be the anchor investor who would lead a round that could reach up to 30 million, as reported by La información and later the company. It was the premiere of the teleco in this market. Just a few weeks later, the ‘FTX case’ broke out, with the bankruptcy of the cryptocurrency platform and suspicions of fraud against its founder, Sam Bankman-Fried. “They told us that they did not want to cancel the operation, but that they needed time to analyze,” explains Leif Ferreira, CEO and co-founder of the platform.
Now, nine months later, the operator will not lead the operation but it does maintain an injection through Ventures, the vehicle for investing in startups. It will have a “relevant participation”, as explained by Bi2me, although they do not specify the percentage. It points out that the leading investor is InvestCorp. In total there are 14 million euros that are all destined to the issuance of new shares and there is no outlet for the sale of titles to existing partners. This amount is significantly lower than what was put on the table in those weeks of September. “With the one that is falling, the fact that the round has been closed says a lot,” says Ferreira, who acknowledges that the negotiation of the transaction has been “particular.” At the end of last year, a 25% cut in the workforce was executed, which at that time exceeded 260 workers, according to the social network LinkedIn (it reached close to 300).
In addition to Telefónica and Investcorp, other investors have joined, in some cases known from the Spanish ‘fintech’ sector. Among the latter is Stratminds VC, a Silicon Valley fund that participated in the financing round at the beginning of last year in the local neobank Bnext. To this is added the fund specialized in ‘blockchain’ YGG or the former head of innovation at IBM, Richard Chang. “It closes after a ‘crypto winter’, where investors are looking for stable, mature companies with a good market position,” explains the startup. In addition, minority partners participate through a special purpose vehicle (with the acronym in English SPV) through which members who contribute ‘tickets’ of less than half a million euros enter.
Convener to Telefónica
As explained by the CEO, the arrival of Telefónica not only serves to provide support from a financial point of view, but also aims to take advantage of the group’s distribution channel, also in Latin America. On the Investcorp side, “it is a player that some can provide the liquidity that is necessary.” After the workforce adjustments, with the departures produced in recent months, the company seeks to have more oxygen with this capital. “The money that now comes with the round will go towards attracting users through the lines of business in this new Bit2me product ecosystem,” says Ferreira.
The Bit2me CEO admits that Telefónica asked to wait: “They did not tell us that they wanted to stop the operation, but that they needed time to analyze”
The moment in which the signing of the round occurs is very delicate. Because of that ‘crypto winter’ and because of the risk concentrated on large platforms such as Coinbase or Binance. Ferreira defends that today there are two crypto industries and locates Bit2me in which “it has been concerned with creating a product, but from maximum protection to the client.” “At Telefónica, they never said no; what they said is that they needed a little more time to understand those nuances, that layer of tonalities; In crypto, not everything is black or white, there are black and white players”, adds the CEO. To convince the teleco they also argued, according to the manager, that its advantage over banks is that it is difficult for the latter to develop specific and well-working products in segments such as crypto.
From a business point of view and after the break in the sector, the company expects to close this year with the same 13 million euros of sales as last year. “The bear market is noticeable, but it would be very good to maintain bull market numbers,” says the CEO. A good part of that money corresponds to the 0.95% commission that they charge for each asset purchase and sale transaction that takes place on their platform or the fee for the purchase, sale or conversion of cryptocurrencies through their ‘Wallet’ product. There is another part that comes from other business lines that have been built in the last two years, such as card issuance. They expect there to be a significant recovery in the sector from 2024.
Still, investor sentiment towards startups has changed, calling for a clear path to profitability. Ferreira explains that Bit2me has always been profitable except in 2022. In 2021, according to his own accounts, he had a net profit of 3.8 million. The following year there was a strong growth in expenses, since a good part of the money raised through the Initial Coin Offering (ICO) was invested in the creation of the product. This led to the firing of the staff until close to 300 people. They carried out a relevant adjustment and, according to Ferreira, today they have around half. In the face of a market shock like the one experienced with FTX, the company argues that they are especially capital efficient. “We have a tap that we know how to regulate to manage the platform; the platform could be carried out with 20 people and we are 150 because we invest in that future”, he explains.
In this growth strategy, the company explains that it contemplates future acquisitions of other companies. To date they have carried out several and some “have turned out well and others not so much”. In general terms, they propose to focus their activity on developing within the necessary products or technologies. “But we are evaluating other purchases, but small amounts, not more than 2 million euros,” he specifies. The latest acquisition was that of the Dekalabs software development company.
In that future, one of the keys will be regulation. The offensive that public bodies are carrying out with cryptocurrency platforms such as Binance or Coinbase in the United States is relevant. From Bit2me they applaud the recent approval in Europe of MICA, that is, the first continent rules on cryptoactive markets. “For us, who play from Europe, it is an opportunity like we have never had before,” he argues. Having its own regulatory framework, with “a playing field with known rules”, is very positive, according to its co-founder. Now, the road will do so with a more populous shareholding, although without Telefónica acting as an ‘anchor’ for now.