Interview: David McCarthy, CFO at Atom Bank

David McCarthy, chief financial officer of Atom Bank talks institutional investment, fintech and fundraising.

Challenger bank Atom has had a bit of a bumpy road since it launched in 2014 as its current account is delayed till 2019 due to upcoming new regulation. However, it makes up for its lack of user numbers with its overall deposits (£900 million), according to Verdict which far outstrip rivals Monzo and Starling. Its mortgage brokering business and savings account has taken off – helped by Will I Am as a strategic adviser. Here, we speak to CFO Dave McCarthy, who has also been at the forefront of the company’s impressive series of fundraisers, which hit £148 million in March this year.

What are the details of the company, when was it founded and why? What is its goal?

The founders got together in early 2014 around a shared vision: To change banking for good, permanently and for the better. We saw an opportunity to disrupt banking whilst supporting the North East economy in which we are based.

We wanted to be the first real alternative to traditional high street banks, free of the legacy costs, issues and culture that have characterised their business models and their attitude to customers

Our primary idea was to champion customers by giving them a fairer and better deal, transparent pricing and a richer customer experience. The low cost, digital model is the key to unlocking this opportunity. Through our digital capabilities, we are driven to empower customers by giving them the ability to manage their money better, encourage them to think for themselves, and ultimately help them change their relationship with their finances. We’ve since set about designing a banking app that’s in tune with how people want to manage their money, while shaking up the banking industry to do the best by customers in the process.

It was also really important for us to set up a financial institution in the North East, in a bid to help boost the local economy and to highlight the wealth of talent in the region, while also proving that banking doesn’t have to be London-centric in order to thrive. The bank has been designed and built at the Atom HQ in Durham, using local expertise and we think the success of Atom is a testament to the talent and the dedication of our extraordinary team here.

How much initial investment did the company need to start and where did it come from?

We raised our seed capital in early 2014. It came from business leaders mostly based in the North East of England. Those early-stage investors are all commercially-minded and saw an opportunity to invest in a start-up which they saw had real potential to disrupt the market and by doing so increase the value of their shares.

But being based in the North East was also important to them. An opportunity to head-quarter a bank in their backyard to create employment, economic vibrancy and develop the region’s credentials as a centre of innovation. We are on track to deliver value for them against both these tangible and intangible objectives.

What was the source of the latest round of investment? How did it come about/what contacts were utilised?

We raised £140 million of capital this year, led by the Spanish bank BBVA and in total we have raised £400 million; no small sum by any standards.

Our existing shareholders provided the finance for the last capital round. Atom has been trading for about two years and now needs large amounts of capital to support the balance sheet and investment plans of a rapidly growing bank. That tends to be beyond the resources of individuals so over the last few years we have added institutions to our shareholder register and this has allowed us to build the capital base to this level. Our largest shareholders are now the Spanish Bank BBVA and Toscafund-a large fund that specialises in investment in Financial Services. These two shareholders provided the bulk of the capital last time.

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Talk about the investment process. From start to completion, what was involved procedurally and what do scale-up companies need to be aware of to ensure an efficient fundraise?

Equity fund-raising tends to be led by the senior team of the bank: the Chairman, CEO and CFO. It is common-and generally wise-to appoint a financial adviser such as an investment bank or other corporate finance expert, to help with presentation materials, to identify likely investors and to advise on matters related to the structuring of the transaction. The fund-raiser will also tend to need legal, regulatory, tax and accounting advice.

First and foremost, candidate investors need to be sold on the management team and its business plan: they need to feel the plan is ‘disruptive’, well-thought through and the team has a proven track-record to give them confidence that the plan will be executed. Increasingly investors will also have ethical considerations.

Having got a level of interest in the business and its team, they then, of course, have to see an opportunity to make money by taking risks that they feel experienced enough to take. So a lot of time tends to be spent perfecting the presentation materials so that the company, its prospects and its team are well understood by potential investors.

It is usual then that the adviser organises some form of ‘roadshow’ where the company seeking funds can pitch its plan widely to the sorts of institutions to which it might appeal. If the investment is of serious interest following that initial pitch, the candidate investors are likely to spend a lot of time analysing the opportunity which will tend to involve follow-up meetings, market analysis and on-site visits. Often the ratio of pitches to successful investment is pretty high as these firms are understandably, very thoughtful about what they invest in. That should not necessarily cause concern-raising money is never easy particularly when you are asking the investor to have faith in something new and unproven.

Once the investment decision is determined there will be negotiations on price and then there tends to be a long process of due diligence and document drafting.

What exactly will the money be used for and how will you maximise control over your cost base moving forward?

We use our capital for three types of things:

  • Investing in making the bank better, including new products, new technologies and in building the brand.  Ultimately this is our bet on the future as we think new, better technology, for example, will pay back in a better customer experience and more efficient processes
  • Investing in growing our assets-as a bank we need to hold capital to back our loans at levels that meet regulatory standards and provide confidence to our depositors that we are solvent.  For a bank – particularly one growing at the rate of Atom-this is by far the biggest user of capital but it is essential because we generate income primarily from lending
  • To cover operating losses. Most start-ups expect a period of loss before they have scaled revenues to a level that covers operating costs. For Atom, this requirement will steadily diminish until, when we are profitable, we will be generating our own new capital.

What specific advice would you give to scale-up companies seeking to follow the same route of investment?

Have a good, clear and distinctive, business plan. Have a good, honest, highly capable team. Be patient and be tenacious. Execute well.

Find out more: Atom Bank

Michael Somerville

Michael Somerville

Michael was senior reporter for from 2018 to 2019.

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