The transaction gave Rocket Internet a 1.72% stake in Funding Circle. At the time of the acquisition and at 31st Dec 2015, Rocket Internet valued its stake in Funding Circle at €24.428m, giving a value to Funding Circle as a whole of approximately $1.54bn or £1.05bn. It is unclear what happened to the 28.6% of Zencap that Rocket Internet did not own and whether this was also paid in shares or in cash. However, we do know that in mid October 2015 5.8m Funding Circle shares were issued for a non cash consideration. We can assume that Rocket Internet were given 4m of these shares and it is likely that the remainder went to the other Zencap shareholders.
Of course, given that this was a share swap and no cash appears to have changed hands, then the valuation above is fairly arbitrary. However, we can try to back into the assumption behind the valuation. Marketplace lending platforms are often valued on a formula that involves cumulative origination volume, given that this is the key driver of platform revenue.
If we examine the basis of the valuation at the time of the transaction it appears that both Zencap and Funding Circle US and UK were valued on the same multiple of origination volume at 1.0x. This seems equitable. The 1.0x multiple is also in the same region as that of Funding Circle’s $150m Series E round in April 2015.
However, it is interesting to explore how valuations based off origination have shifted in quoted markets. Applying the same ‘multiple of origination’ methodology to Lending Club at three different points in time reveals how the implied multiple has changed over the last 18 months.
Cumulative Origination ($)
Market Capitalisation ($)
Multiple
(Mkt Cap./Cum Orig.)
Funding Circle UK & US
at April 2015 Series E
$0.95bn
$1.1bn
1.2
Funding Circle UK & US
at Zencap Acquisition
$1.57bn
$1.54bn
1.0
Zencap
at Acquisition
$0.037bn
$0.037bn
1.0
Lending Club
at IPO
$7.6bn
$5.58bn
0.7
Lending Club
at Zencap Acquisition
$13.4bn
$5.78bn
0.4
Lending Club
as of today
$18.7bn
$1.87bn
0.1
Source: Company Data, AltFi Data, Bloomberg
Whilst translating private market valuations to public markets, or vice versa, is not an exact science, it is likely that valuations have adjusted in the same direction, even if not by exactly the same magnitude.
Funding Circle has raised $273m in equity thus far and it is thought that a large portion of that capital is yet to be deployed. Raising this capital at the high valuations that were prevailing in 2014 and 2015 looks extremely wise in hindsight. Equally, avoiding paying for its foray into Europe with cash insulated Funding Circle from any subsequent movements in valuation multiples. Given the implied multiple that Lending Club’s stock is languishing at today, both look to have been very smart moves.
