Fintech Upgrade raises $165 million, targets IPO in 12 to 18 months

The round valued Upgrade at $7.3 billion pre-money, according to a source familiar with the matter, a 21.7% premium to its previous valuation

Consumer finance fintech Upgrade said on Thursday it raised $165 million in its latest funding round, nearly four years after its last external financing during the height of the 2021 fintech boom. 

The round valued Upgrade at $7.3 billion pre-money, according to a source familiar with the matter, a 21.7 per cent premium to its previous valuation. 

"We're probably 12 to 18 months away from an IPO, so we wanted to give the team members some liquidity before IPO," Upgrade CEO Renaud Laplanche told Reuters in an interview. 

Fintech startup investment surged in 2021 on low rates and abundant capital, but cooled in subsequent years as inflation rose and the Federal Reserve hiked interest rates. 

A rebound in equities and easing macro concerns have revived IPOs, with fintechs returning to the market after a years-long slump. 

Swedish fintech Klarna and neobank Chime have debuted in New York in recent months. 

The round was led by investment firm Neuberger, which also buys loans from Upgrade. Neuberger's Head of Specialty Finance, Peter Sterling, has joined Upgrade's board of directors. 

DST Global and Ribbit Capital, existing investors that also joined the round, did not immediately respond to requests for comment on Upgrade's latest valuation. 

Founded in 2017, Upgrade has disbursed more than $42 billion in consumer credit via mobile banking, credit cards, buy now-pay later, personal lines, and home-improvement and auto-financing. 

Venture funding for retail fintechs fell 49 per cent in the second quarter from a year earlier, according to a PitchBook report, as investors flocked to enterprise solutions leveraging AI. 

AI's impact on consumer products, and consequently on the retail fintech sector, has been less immediate. It has, however, prompted a shift in marketing strategies. 

"We switched a lot of focus from traditional search engine optimization to AI search optimization," Laplanche said, referring to evolving marketing practices.