Funding Circle – globalized lending to UK small business with Government as Partner

Lending Club is headed to IPO. Prosper cannot be too far behind. Both have raised a lot of money. So has Funding Circle. Amount of money raised is a lousy proxy for success, but until we get hard data in a public S-1, it will have to suffice. I have added Ondeck, which is also heading to IPO. Both OnDeck and Funding Circle list small business as their target, whereas Lending Club and Prosper will lend to Consumers as well, but there is some evidence that the demand for Lending Club loans is coming from small business.

  • OnDeck $409 million
  • Lending Club $392.2 million
  • Prosper $189.9 million
  • Funding Circle $123.2 million

Funding Circle is the only one of that 4 who is not from America. Funding Circle is from London, which is increasingly living up to its reputation as the “Fintech Capital of the world”. Funding Circle has also raised the least amount of money, which is no surprise, because historically it has been harder to raise money in Europe than America. That is changing fast, so I doubt that Funding Circle will lack access to capital.

IPO is a big deal for these ventures, not because of access to capital. They can raise just as much capital in private rounds. IPO matters because it is a big branding event and that matters because P2P lending is about convincing a lot of people on both sides of the marketplace (borrowers and lenders) that the brand can be trusted (and you cannot be trusted if nobody has heard about you).

The Funding Circle story is about globalization and politics; that is an unusual combination. One part of the globalization story is a UK business with money from big American Funds. Their Series A was from a European Fund (Index) that also invests in America. In subsequent rounds, Funding Circle got money from American Funds (Union Square Ventures, Accel Partners and Ribbit Capital) that also invest in Europe. The second part of the Funding Circle globalization story is their deal with Santander Bank (a Spanish Bank with a big footprint in the UK).

It is the Government part of the story that is more surprising. The FundingCircle front page has this tag line:

“Thousands of people and the UK Government have lent over £370 million to businesses. At rates that suit everyone.”

It was the UK Government part of the story that caught my eye. In the world of Fintech, Government is usually mentioned in the context of regulation, which is a story of “the cost of doing business”, where the founder’s initial instincts to just serve consumers has to yield to a more grown-up view that says that serving consumers at scale means doing it under the gimlet eye of the regulators.

However, Government as partner is a different story.

When it comes to small business, politicians know how to count votes and that there are way more votes in small business than in big business. Politicians also know that small business is the driver of economic growth and that is the driver of electoral success. The UK Government has been more proactive on helping small business than the US Government (but some trends in US on this front are encouraging as well).

FT has the story on Funding Circle and the UK Government (paywall). It is a clever model. Rather than attempting to invest directly in small businesses, the UK Government simply lets investors on Funding Circle choose who to lend to and what rate to lend to them, but then has promised to invest money alongside them. It is like Angel List, you follow the experts who have done their research. How much the UK Government is investing is unclear. The article says £40m but it also says 10% of whatever Funding Circle lends (which presumably will soon be more than£40m if it is not already so). It is a savvy move from a business-savvy Government. They help small business at commercial rates (which leaves Government with a nice spread, because their cost of borrowing is so low).








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