Funding Circle Plans IPO With Danish Billionaire's Backing

(Bloomberg) -- Funding Circle Ltd., Britain’s biggest online loan provider, plans to proceed with an initial public offering, the latest test for Europe’s maturing fintech sector.

The eight-year-old company plans to raise about 300 million pounds ($388 million) selling new shares on the London Stock Exchange, while existing shareholders will also sell stock in the IPO, according to a statement Monday. Anders Holch Povlsen, a Danish retail billionaire, agreed to buy 10 percent of the equity under certain conditions.

Funding Circle’s valuation post-IPO should be about 2 billion pounds, according to a spokesman. Chief Executive Officer Samir Desai said the company planned to use its fresh capital to expand in its current markets with more advertising campaigns and more funding deals. But in the longer term, the firm plans to expand into new markets, though he declined to specify which ones.

“We are very focused on expanding the reach of the platform,” Desai, 35, said in an interview. In small-business lending, “there is still a long way to go,” he said, given Funding Circle has an aggregate 0.5 percent market share in its four markets of U.K., the U.S., Germany and the Netherlands.

Funding Circle has arranged more than 5 billion pounds in loans and its sales have been rising at a rapid clip, with no sign of a slowdown from Brexit. It recorded 94.5 million pounds in revenue in 2017, an 86 percent jump from 2016, according to its registration document; revenue reached 63 million pounds for the first half of this year. Yet the company is still not profitable -- it had a loss of 27 million pounds in the first half of 2018 and a 35 million-pound loss in 2017.

Funding Sources

“Funding Circle will focus on driving growth over profitability through the medium term, and incur elevated marketing spend through 2020,” the company said.

Founded in a London pub by Desai and two friends from Oxford University, Funding Circle initially grew as a so-called peer-to-peer lender that matched retail investors and small companies on its website. It now has 1.9 percent of the small- and medium-sized enterprise lending market in the U.K.

Increasingly, it’s turned to other sources of funding. Individual investors finance about a third of its loans, 5 percent comes from government agencies, and half comes from institutions like Aegon NV, the Dutch insurer, which agreed to place 160 million pounds on Funding Circle’s platform last year. The rest is financed by investment funds set up by Funding Circle. Desai said Monday that the company would remain committed to funding its loans through a variety of sources.

Click here to read about BNY Mellon’s deal with Funding Circle

Povlsen’s other tech investments have included Asos Plc, Zalando SE, and Klarna, the Swedish digital payments processor. His obligation to buy 10 percent of Funding Circle is waived if the pre-IPO valuation rises above 1.65 billion pounds, according to the statement.

Other fintech IPOs in Europe this year included Adyen BV, a Dutch-based payment processor for companies like EBay Inc. and Airbnb Inc. Its June share sale was one of the biggest European fintech IPOs in years, and the shares have more than doubled.

Funding Circle’s IPO promises to be a nice win for Index Ventures, the venture capital firm that also backed Adyen. Index backed Funding Circle in its first two funding rounds in 2011 and 2012, which raised $18 million. Accel Partners is another firm that backed Funding Circle early on.

"Just as banks have become more reluctant lenders, Funding Circle has become an indispensable source of financing for small businesses," Neil Rimer, an Index partner and Funding Circle board member, said in a statement.

Bank of America Merrill Lynch, Goldman Sachs Group Inc. and Morgan Stanley are managing the IPO, with Numis Securities as joint bookrunner.

©2018 Bloomberg L.P.