TCi100

The TechCityInsider100 is our editorial strand profiling the people and businesses helping to make digital Britain tick. Across the year we publish 100 interviews with people in the TCi100 - after 2012 and 2013 we now have a TCi100 alumni numbering over 200.

Desai looks to complete Funding Circle

TECHNATION200: London fintech disrupter Funding Circle enables individuals, businesses, institutions and governments to lend directly to small business owners. In April the founders closed a £100m series E round – then conceded that they didn’t need the money. Co-founder Samir Desai tells Toni Sekinah why.

Samir DesaiIn April, peer-to-peer business lending platform Funding Circle made headlines when raised a monster £100m series E round. But FC chief executive Samir Desai admits that the investment was less of a necessity than a chance not to be missed.

“£100m is we think the largest raise in the UK, certainly in the last three years,” says Desai. “We didn’t actually really need the money but it was an opportunity that we couldn’t really turn down.”

Lead backer in the latest round is DST Global, which has previously invested in Facebook, Zynga and Groupon. Others on that series E list are Temasek Holdings, Docusign backer Sands Capital Ventures and Baillie Gifford, which has backed SurveyMonkey.

Desai believes that any company would be happy to have such high-calibre investors on the shareholder register. For Funding Circle, the new backers would give them high-profile support and significant help in entering new markets.

“They are some of the biggest investors in the world,” he says. “For example, Black Rock is the biggest asset manager in the world and Temasek is the Singaporean sovereign wealth fund, It’s great and it’s a testament to how fast the business has grown and the incredible potential it has.”

Funding Circle has certainly made a name for itself in the increasingly crowded world of the UK fintech ecosystem.

Although Zopa paved the way for peer-to-peer lending to individual borrowers when it was founded in 2005, Funding Circle – which came along five years later – was the first to create a marketplace for small business lending. It has been joined by other peer-to-business platforms like FundingKnight and Assetz Capital.

The Funding Circle platform cuts out the banks – many of whom have cut lending to small businesses – to provide small businesses with easier access to finance. Since the company was set up in 2010, over 40,000 UK investors have loaned more than £650m to British businesses through the platform.

Businesses that have an annual turnover of more than £50,000 and two years of filed accounts can apply for a loan of between £5,000 and £1m (or £3m for a property development).

The business owner applies online, then gets a response from a Funding Circle credit assessor within two working days. Once approved, the loan is listed on the marketplace and registered investors offer money towards the loan.

Once a loan is fully funded, the business owner can accept it and receive the capital in to seven days. The borrower has between six months to five years repay the loan.

Lenders can pick and choose the individual businesses they want to lend to via Funding Circle and can lend as little as £20. If they do not have a specific business in mind they can use an automatic allocation tool, which automatically spreads the investment across many different businesses. After fees and bad debts (but before tax) the average return is 6.3%.

Funding Circle charges the borrowers between 2% and 5% if they accept a loan and a loan servicing fee of 1% every time an interest payment is made.

Desai, alongside co-founders Andrew Mullinger and James Meekings, set up Funding Circle after the 2008 financial crisis when there was little trust in the banks and many small businesses were struggling to access debt finance.

Desai recalls how those loans that were approved loans often had to wait 15 to 20 weeks for the money to come through.

The situation was not much better for small businesses across the pond on Main Street. In fact, Funding Circle has made inroads into the US market following two acquisitions in 2013 and 2014 and now of the $75m of new lending a month that the platform facilitates, $15m is in the US, according to Desai.

“In the ultra long run the US will be one of the biggest, if not the biggest, market, just by virtue of how big the country is,” he says.

Despite the proliferation of P2P platforms, Desai still sees traditional banks as the main competitors for the platform.

However, in a move that surprised many, in June last year Funding Circle teamed up with one of the largest banks on the UK high street, Santander, in a “referral agreement”.

The deal mean that, if Santander is unable to lend to a business owner because it is unfamiliar with the sector they are in, the bank can refer that person to Funding Circle, which will try to help them.

Desai says there may be instances when the two can co-lend to the business owner. “They can get a larger loan through both of us together rather than that business going to another bank so it’s really beneficial to the small business owners and I think it’s been very innovative and forward thinking of Santander to consider that.”

“We want Funding Circle to be part of the financial infrastructure,” says Desai.

Funding Circle followed up the Santander deal this January with another referral agreement, this time with RBS. Desai says other banks may soon follow.

In addition to the latest mega-injection of capital, April saw the arrival of chief product officer David Yu – a prospect that leaves Desai genuinely excited. He says that Yu – former chief executive at Betfair – will take the technology systems to another level. “We’ll be doing good work with him over the next few months.”

Despite these latest eye-watering funding rounds, Desai admits that Funding Circle still faces a serious lack of visibility.

Even though it is now the fifth largest net new lender to small businesses in the UK, fewer than 5% of businesses in the UK know that Funding Circle exists – and the percentage is smaller in the US.

“The biggest challenge we have is just to increase awareness and we’ve got a decent amount of money now so hopefully that’s something we can start to address quickly,” he says.

So maybe that £100m will come in handy after all.

Samir Desai – CV

Since 2009
Co-founder and chief executive, Funding Circle

2007-09
Executive, Olivant

2004-07
Management consultant, Boston Consulting Group.

Education

2001-04
Economics and management, University of Oxford.