Every big new business sector transformation tends to go through three big phases – with AltFinance no stranger to this corporate evolution. The first phase is the exciting “bootstrap” period when new firms vie with each other to carve out their bit of space in a new land grab. Phase two consists of the first wave of M&A activity as the leading players start to bulk up and expand internationally by judicious takeovers and acquisitions. In the final phase, the dominant players (think of the lies of Microsoft in IT) become massive scale corporations, turn into cash machines and then slowly the growth rate declines until a whole new wave of innovation starts up again.
The AltFinance space has until fairly recently been stuck in the first bootstrap phase with the emphasis on new players emerging to fill vacant opportunities. But the news today that Funding Circle has made a decisive push into America through its purchase of Endurance confirms that we are now entering phase two, where M&A activity begins to become more noteworthy. This second phase is of course a subtle game about staying ahead of the competition by starting to build a competitive moat of advantage around your expanding business, in a fast enough manner to stay ahead of the competition – who tend to react by mimicking your own actions.
Funding Circle’s foray into the US is probably well timed, as the US scene needed some M&A activity to justify all that frenzied VC deal making – deals are needed to be able to fix prices on key equity investments. Also the US market especially for business lending is likely to step up a gear next year due to regulatory changes under the JOBS act. Last but by no means least Endurance is a perfect fit for Funding Circle as it shares many of the same ideas and brand values of its new UK partner.
But for me the more interesting news is hidden down in the middle of the press release, detailing the fund raising round that accompanies the deal will signal a step change in Funding Circle’s UK product suite. Here’s the Key passage -
“The investment will be used to support the growth of the business in the UK with specific plans to launch new asset finance and commercial property products that will provide significantly more lending opportunities for UK investors. The money will also assist Funding Circle’s US operations, headquartered in San Francisco.”
So, we can expect new products to launch in the UK – clearly an attack on Relendex is on its way in the property lending arena whilst I wouldn’t rule out an imminent assault on invoice funding as well (new asset finance). Both of these spaces have looked ripe for the taking and especially in invoice funding Funding Circle will find itself up against wiley incumbents – but that’s unlikely to stop the ambitious platform flush with new shareholders and more money.