Babylon looks for $400m of fresh funding

Babylon looks for $400m of fresh funding

Babylon, one of Britain’s most prominent tech start-ups, is trying to raise about $400m after spending more than $75m last year on its rapid expansion and after hopes that SoftBank would invest failed to materialise.

The company, which has deals with England’s National Health Service (NHS) for an app that analyses patients’ symptoms and a 24-hour video consultation service, has been praised by Matt Hancock, the UK health secretary, as one of the “biggest names in AI (artificial intelligence).”

Its ability to raise fresh funds is a key test of confidence in Ali Parsa, its founder, who previously led Circle, the first private manager of an NHS hospital, until it fell into financial difficulty in 2012.

Babylon held discussions with SoftBank about an investment last year, but the conversations did not progress, according to several people with direct knowledge of the talks.

The health tech company had informally discussed a substantially higher fund raise last year, said four people in the industry. “They have been trying for a while to raise funds,” said one person.

Its current $400m target would be one of the highest fund raises for a UK tech company, with only a handful of businesses including Deliveroo and Improbable having raised more in private financings.

Babylon said it had never targeted a higher amount and has not scaled back its expectations. Morgan Stanley and Goldman Sachs, the two banks hired by Babylon to manage the process, declined to comment.

Babylon has grown rapidly since it last raised $60m in April 2017 from the Swedish investment vehicle Kinnevik and the family of Egyptian billionaire Nassef Sawiris, at a valuation of $100m.

In 2017, the start-up employed about 300 people but now employs more than 1,000 and had total expenses of more than $75m last year while generating revenues of roughly $10m, said people familiar with the matter.

The workforce includes 600 scientists and technologists, 200 doctors and a handful of sales staff, according to Babylon.

The current fundraising comes against a difficult backdrop, as volatility in the public markets threatens to depress valuations in the private market. Investors have warned start-ups to hold more cash and moderate their ambitions in raising new money.

Babylon is made up of three UK subsidiaries. Babylon Partners, which develops the company’s technology and operates its headquarters in London’s expensive borough of Chelsea, made £1.5m of revenues in 2017. Babylon Healthcare Services, which operates the GP at Hand video consultation service, had £1.8m of revenues.

The two companies had combined “administrative expenses” of £30.5m that year, before Babylon’s staff numbers rose sharply. Babylon International, the third subsidiary, was incorporated last year and has not yet submitted accounts to Companies House.

Babylon’s holding company is based in Jersey, with its major shareholder, ALP Partners, owned by Nedgroup, a trust of the Parsa Family Foundation.

The trust is managed by Old Mutual, the South Africa-based insurer, which since last year has appeared on Babylon’s UK filings as the entity with control of the businesses.

Babylon has received a number of large payments from its commercial partners since its last fundraising. Last August, Babylon signed a deal with Prudential’s life insurance and asset management arm in Asia that was worth $100m, according to two people close to Babylon. One month later, Ali Parsa, the company’s founder, announced that the start-up would spend $100m to double the size of its team in London. It has also signed deals with Tencent and Samsung.

One person familiar with the transaction said revenue from the Prudential deal would be recognised over the course of the three-year contract.

Babylon has faced regulatory scrutiny in the UK after complaints from doctors, who have warned it could miss signs of serious illnesses. It has since made changes to its app.

Babylon said it had not held discussions with SoftBank during its recent fundraising efforts and had been overwhelmed by interest.

“We have actually increased our fundraising target range due to strong interest in the process, but the amount will still be within a range that can be commercially justified,” it said.

Additional reporting by Matthew Garrahan and Cynthia O’Murchu

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