Fintech Investors Balk at Funding Circle Top IPO Price

(Bloomberg) -- European fintech entrepreneurs may have become too optimistic about the rewards from taking their companies public.

Funding Circle Holdings Plc was little changed in its first day of trading Friday after pricing its initial public offering at the bottom end of its price range. The eight-year-old British online loan provider’s IPO valued the company at 1.5 billion pounds ($2 billion), compared with an initial aspiration of as much as 2 billion pounds.

The shares barely got an opening-day pop from their 440-pence IPO price, with an initial gain of almost 5 percent erased after the first half-hour of trading. The stock was little changed at 440.2 pence at 2 p.m. in London.

“It’s a good business -- it’s just very difficult from an investor point of view to see how it warrants a near-2-billion-pound valuation,” said Claudio Alvarez, a partner in London at GP Bullhound, a technology advisory and investment firm.

Enthusiasm for the sector’s prospects reached a peak this summer, when Dutch payment processor Adyen NV more than doubled in its first day of trading and went on to triple in value. Unlike Adyen, though, Funding Circle is unprofitable, plowing its rapid revenue growth into equally rapid expansion.

Funding Circle raised 300 million pounds by selling new stock in the IPO, which is backed by Anders Holch Povlsen, a Danish retail billionaire. The London-based firm, formed in 2010 by three friends from Oxford University, was initially a peer-to-peer lender that matched individual retail investors with small companies. It has since turned to other sources of funding, like big insurers and government agencies seeking to get more credit into the economy.

The initial range for the IPO was 420 pence to 530 pence, which would have valued the company at a maximum of 1.8 billion pounds. The range was subsequently narrowed to between 440 pence and 460 pence.

"This is not necessarily a barometer of investor appetite for all of fintech, but more about investors reacting to seeing a steep revenue multiple for a business that has yet to turn profitable,” Alvarez said.

©2018 Bloomberg L.P.