Small business lending may be the biggest and most broken market in Fintech and the innovations just keep coming. I have earlier covered Lending Club, Ondeck, Kabbage, Dealstruck, CAN Capital, Funding Circle. With Lending Club headed to IPO and Ondeck having also declared their IPO ambitions, the small business lending market is officially hot.
I recently spoke with Christoph Rieche of Iwoca, a UK company backed by the Samwer brothers (of Rocket Internet IPO fame) and other investors.
Like Funding Circle, Iwoca is a UK entrant into a market that has been dominated in the past by American firms. For London to earn the coveted label of “Fintech Capital of the world”, one of these companies has to become a global winner. Being a winner in the UK and being acquired by a global winner is often a great financial result, but the UK needs to prove that it can create ventures that can be compared with the giants from Silicon Valley.
Iwoca appear to be in the same space as Ondeck and Kabbage, using online data aggregation and risk analysis to automate the process of getting to a risk adjusted lending rate that draws in investors.
Iwoca (along with Funding Circle) is the UK entrant into this global market.
Christoph’s partner, James Dear, is ex Deutsche Bank where he worked on sophisticated credit analysis of corporate bonds. It is interesting to see the expertise moving from the already highly efficient corporate bond market to the highly inefficient small business lending market.
Peter Thiel in his inspiring lectures at Stanford talks about finding the right insertion points into big broken markets. Specifically, Thiel advises to go for the smallest markets you can find, the markets ignored by the big dogs where you can build your traction while the big dogs are looking the other way. He refers to his experience at PayPal, where they targeted eBay users at the time when eBay was a fad in Silly Con Valley that looked absurd to most people.
Iwoca seem to using this play-book. Iwoca targets small e-commerce vendors who use services such as eBay and Amazon as well as their own web sites. This is smart because there is rich data troves in their revenue streams that can reveal credit-worthiness. This also looks like a good intersection of consumer and small business as many e-commerce operations are sole practitioners or even moonlit hours operations where somebody is doing it at night and during weekends until it reaches the scale where they can “quit the day job”. Big companies often ignore these intersections, because they want to have a clear demarcation between consumer and business. Entrepreneurs just say, “somebody has a need that nobody else is serving, we don’t care what it is called, we are going after it”.
Something seems to be working for Iwoca, based on some numbers that Christoph shared with me. He told me that Iwoca has funded 1,500 businesses after having only been founded 3 years ago in October 2011. Speed and momentum matter in the marketplace game, so Iwoca will be an interested one to watch.