The money is not a typical equity round: It comes by way of an Advanced Investment Agreement (AIA). The company had secured the AIA in early 2021 as a kind of backstop from current backers if its proposed SPAC fell through. Investors include ION Group, Social Leverage, SoftBank and Spark Capital.
An AIA is an agreement where an investor (or investors in this case) pay in advance for shares that will be allocated later, sometimes at a discount. The company came to an agreement with investors, according to eToro, that the investment would be converted two years after the signing of the agreement based on the following conditions: that it had not pursued the SPAC transaction or raised any additional capital.
The SPAC did not take place and the company has not raised an equity round since 2018. In fact, at the time that the SPAC agreement was terminated in July 2022, eToro was in negotiations for a private funding round for between USD 800 million and USD 1 billion, at a USD 5 billion valuation.
The company denies that it tried to raise money in a traditional round in 2022. It said the shares allocated under the AIA were not applied at a discount since the last raise was several years ago and there was no recent reference point for historical transactions where a discount could be applied.
Nevertheless, the company had several setbacks around the SPAC that called higher valuations into question. In March 2021, the Israel-based company had announced it would go public via a merger with Betsy Cohen-backed FinTech Acquisition Corp. V in a USD 10.4 billion deal. Then in January 2022, the company’s valuation got slashed by over 15%, to USD 8.8 billion. By early July, the two parties had mutually agreed to terminate the deal after the deadline for eToro to go public under the SPAC arrangement expired on 30 June 2022. The merger was called off in part because of regulatory changes regarding SPACs and companies involved in cryptocurrencies.
The company’s latest financing follows a challenging year. Its funded accounts totalled 2.8 million by the end of 2022, up modestly from 2.4 million in 2021 but still significantly higher than the 1 million it had in 2020. Notably, eToro saw a significant decline in commissions, which and totaled USD 631 million in 2022, down 49% compared to 2021 and up just 5% from the USD 605 million in revenue it notched in 2020.
This means that eToro has only grown slightly in terms of revenues since 2020. It also means that it is growing at a far slower pace than projected. At the time of its SPAC filing, the company projected revenue of nearly USD 1.2 billion in 2022.
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