- Accounts show Funding Circle’s 2016 revenue up 59% to £50.9 million, losses down 3% to £35.7 million; CEO says: ‘We believe that our business should be a public company’; Spanish lending and property operation shuttered as company focuses on core business; CEO on economic outlook: ‘Overall we’re feeling pretty good.’
- Funding Circle
LONDON – Online small business lender Funding Circle lifted the lid on business performance on Wednesday, showing revenue passed £50 million for the first time last year.
Accounts for 2016 filed with Companies House this week show:
- Revenue rose 59% to £50.9 million; Operating expenses rose by 43% to £103.1 million; Losses dipped by 3% to £35.7 million thanks partly to a foreign exchange boost; £1 billion lent last year; Loans outstanding rose by 61% to £1.37 billion;
Funding Circle’s CEO and founder Samir Desai told Business Insider: “We were pleased with the result for the group. Overall we improved our loss margin. The UK business became cashflow positive in Q4 of 2016 and continues to generate positive cashflow in the first half of the year.
“It’s been a good period for the business and we’re feeling really good about both our absolute and our relative performance, relative to the market.”
Funding Circle, founded in 2010, is a peer-to-peer lending platform. It connects small businesses looking to borrow money with investors looking for good returns. The platform is the UK’s biggest, with over £3 billion lent across its platform globally.
Funding Circle recently launched a £12 million marketing campaign and Desai said: “We’re continuing to grow the business at a rapid pace. We’re on course to approximately double revenues this year, which we’re quite pleased about.”
He added: “As we’ve said many a time, we believe that our business should be a public company as well because that fits with our values of transparency and being open, and allows us to take our service to more and more people as well.”
Desai couldn’t comment on a specific timeline for an IPO and said that there are “no immediate plans” for international expansion, but added: “We do very much see ourselves as an international business. Now that we’ve done the painful bit we can add new markets very easily.”
‘It goes without saying that international is really hard’
While Desai is bullish on international expansion, the accounts show Funding Circle stopped operations in Spain at the start of the year, a market it entered through the acquisition of Zencap in 2015.
- Funding Circle
Desai told BI: “It was just a focus decision that we made at the beginning of the year. Initially we paused new lending and in the end, we decided that actually our energies and effort were better focused on our core market – the UK, US, Germany, and the Netherlands.”
International revenues grew slower than UK revenues last year and Funding Circle parted ways with the head of its continental Europe operations in the middle of last year.
“It goes without saying that international is really hard and it is probably harder than I expected when we first started doing it,” Desai said.
“It’s certainly been very challenging but equally it’s been incredibly rewarding and actually, we’re now starting to see huge benefits from being a global business.
“We have investors from one country who will learn about us in one country but lend in another. Learnings that we get in one market on marketing or risk, we can very quickly translate into other markets. And it creates a really big, attractive proposition for say large insurance companies who don’t necessarily want to go to lots and lots of platforms and lend through them.”
German insurer Aegon recently agreed to lend £160 million across Funding Circle’s platform, a major boost for the business.
Funding Circle recently also decided to abandon its property lending operations. Desai said: “It was a good business, the loans performed very well. But I think we’ve realised that we have this business of lending to small businesses with these amortising loans that get paid every month and we’re actually getting really good at [it].
“There’s a big underserved opportunity in these markets and we thought we really just needed to focus on that one opportunity in all of those markets to really get the benefit of us being global. It’s the old Steve Jobs adage – focus isn’t what you say yes to, it’s what you say no to.”
‘We’re not seeing the headwinds you see in other parts of the market’
While Desai is bullish on business prospects, the wider market is less rosy. The US online lending industry has been in turmoil since a scandal at leading platform Lending Club. Prosper, once another leading platform, saw its valuation cut by 70% in a recent funding round.
Desai says: “It was a tough market in the US last year, there’s no hiding from that. You had all the stuff at Lending Club, you had a general loss of confidence that was precipitated by that event, but actually, we were really pleased with our relative performance.”
This really is a scale business
“Whilst we’re always vigilant to an economic cycle, and that’s a big part of how we price and assess small business borrowers, we’re not seeing the headwinds that you see in a lot of these other parts of the market,” Desai said. “Performance has remained resilient. Overall we’re feeling pretty good.”
Funding Circle remains a loss-making business (accumulated losses stand at £116.6 million to date) but Desai says it is on a long-term path to profitability.
“The UK actually makes a lot of money on every single marginal loan we do. If you want to call it a contribution or gross profit, it’s very, very high for every single additional unit we do. At scale, it’s very, very profitable.”
He added: “Increasingly you’re starting to see a few platforms emerge within specific asset classes like small business lending, property, student loans, consumer loans, of large scale. And this really is a scale business. You need to aggregate huge amounts of data, you need very diversified investor bases to really get to a level that really makes a difference.”