Thought Machine hits $1 billion valuation in JPMorgan-backed funding

LONDON — British fintech start-up Thought Machine has raised $200 million in a fresh round of funding that lifts its valuation above the coveted $1 billion mark.

The cash injection was led by Nyca Partners, a U.S.-based venture capital firm that has previously bet on companies including Affirm and Revolut, with additional backing coming from major lenders including JPMorgan Chase, Standard Chartered and ING.

Existing investors Lloyds Banking Group, Eurazeo, and SEB also increased their holdings.

Founded in 2014 by former Google engineer Paul Taylor, Thought Machine says its software helps big banks move away from legacy IT infrastructure to a modern, cloud-based platform.

The firm counts many of its big-name banking backers as clients. In the U.S., for example, it has a deal with JPMorgan to replace the company’s core retail banking system. In Britain, Thought Machine has a similar deal with Lloyds.

Taylor said his firm’s mission “isn’t a small one,” and that it requires substantial investment to achieve its goals. Though Thought Machine is now making “tens of millions” of pounds in revenue, it isn’t yet profitable, he added. The company makes its income from multi-year software subscription deals.

“It’s a fantastic time to be an entrepreneur,” Taylor told CNBC in an interview. “There’s more funding available than ever.”

“It means that, here in the U.K., we can actually build a world-class company, rather than always be looking over our shoulder at Silicon Valley.”

Thought Machine plans to use the fresh cash to expand internationally. The firm opened an office in New York earlier this year, with about 20 employees leading its U.S. expansion.

Thought Machine is also setting up shop in new Asian markets like Malaysia and Japan. Around half of Thought Machine’s business now comes from Asia, the firm’s CEO said. It has a headcount of around 500 people globally.

The company competes with the likes of Mambu, which was valued at over $2 billion in its most recent funding round, as well as 10x Future Technologies, the fintech venture of former Barclays CEO Antony Jenkins. 10x is also backed by JPMorgan.

Thought Machine is one of several new business-focused fintechs looking to partner with, rather than disrupt, the world’s banking behemoths. Banks are facing increasing competition from a slew of new digital entrants like Chime, Revolut and N26.

So far, these challengers have yet to make a significant dent in the incumbents’ share of the market. But they are gaining significant traction with consumers and plenty of funding from venture capitalists willing to subsidize substantial losses in favor of rapid growth.

Banks aren’t sitting quietly. Many have attempted to roll out their own standalone digital banking products, to varying degrees of success.

JPMorgan recently launched a digital-only version of its Chase brand in the U.K., while Credit Suisse rolled out a new banking app called CSX in Switzerland.

However, several lenders have stumbled in their digital transformation journey. RBS, for example, shut down its Bo online banking brand last year.

“Our goal is not to pick winners in the space,” Taylor said. “Our goal is that, if anybody wants to launch a cloud-based bank, we’re available and they can use our platform.”

Asked whether an initial public offering was on the horizon, Thought Machine’s founder said it was likely to go public in about three years.