But lurking behind this news are some interesting questions, about strategy, about choice of platforms and most importantly what comes next for the biggest P2P lender to business. For me, the big question is why the USA? Why not target a slightly less competitive territory in Europe for instance? According to Funding Circle’s co founder and CEO Samir Desai, the US is still very much the place to be. “In the US there are 9 million accredited investors – that’s a huge market” says Samir. “They collectively manage trillions of dollars of net worth. And currently, there is no true investor marketplace for peer-to-business loans and very little online loan origination in the 3- 5 years term length category. Funding Circle will therefore launch the first peer-to-business marketplace in the US by the end of the year. Together [with Endurance] our aim is to help millions of businesses across America sidestep the broken banking system and borrow directly from investors. We are combining an established home-grown team with a strong track record in the US and local knowledge, with proven experience in the UK and game-changing technology”.
In essence Funding Circle is following a well trodden path for globally ambitious UK outfits – the US may be super competitive but if you can crack the states, the world is next. But what attracted Funding Circle specifically to Endurance? According to Samir “In the end it was a very easy decision. We spent time looking at almost every start-up peer-to-business lender in the US, but Endurance was head and shoulders above everyone else in the space. They had taken a similar conservative approach to their underwriting as Funding Circle and both sides could see that joining forces made sense”.
The combined Funding Circle/Endurance operation will now be a major player in a fast expanding US market, but there’s one crucial difference between the two national models – in the US P2P lending has pretty much exclusively been the preserve of either very wealthy individuals or (more commonly) institutions whereas in the UK the financing model is much more democratic. Won’t this have to change in the US before the P2P lending to SME opportunity really hits its stride? “To build a really successful business that gets finance to small businesses quickly and efficiently we will continue to focus on accredited investors” says the Funding Circle CEO, but then adds ” however looking ahead 5-10 years, we would love to offer this investment product to anyone in the US”. More openness and transparency in terms of market data should help with this push into new US investor markets – “We don’t currently share loan volume in the US although this information is about to be published broadly, which is a continuation of the transparency we have shown in the UK”.
In terms of expanding the combined entity that extra $37 million in funding from its anchor investors should also come in handy now – as Samir suggests ” we’ll use the funding to support the growth of Funding Circle’s US operations. Funding Circle in the US is on the same trajectory and growth path as the UK business – the UK is just three years ahead. Endurance have taken the same steps as we did in their early stages, so will operate as a subsidiary and leverage our experience and resources; getting the best of both worlds. All of Endurance’s 16 staff members are staying on and they will be growing that number aggressively with the expectation they will be at 60 people by the end of next year.. Additionally, the US side of the business have recently received greater than $40 million in capital commitments and plan to deploy that quickly”.
But for this observer the most interesting story is what Funding Circle will do with its extra money – in the UK. Although it faces stiff opposition in its core loans market from the likes of ThinCats,Funding Knight and RebuildingSociety, it’s hard to see why it needs millions of extra pounds to carry on waging this war. Clearly new product sets are next up, and attention must surely focus on two obvious early battles – going up against Relendex in providing real estate backed loans and MarketInvoice/Platform Black in terms of invoice funding. So, is the extra money going on attacking invoices and mortgages? “One of the key reasons for raising $37 million of new capital was to help us accelerate the growth of the business in the UK” admits Samir. “We have specific plans to launch a range of products over the coming months that will provide significantly more opportunities for UK investors and businesses, and we hope to make some announcements soon. We are committed to building a successful, lasting business in the UK and the US.”
Given these guarded words Desai’s clearly not giving anything away at this stage but I’m willing to wager the bank that Relendex, MarketInvoice and Platform Black are about to face a well funded and aggressive new competitor within the next few months - my guess is that those VCs who’ve stumped up their money for Funding Circle are going to demand explosive growth and that means servicing the entire financing requirements of SMEs in the UK, not just the loan book and helping with an overdraft! Watch this space.