P2P lender Funding Circle raises £300M in London IPO, trades flat after pricing at the lower end of range
Another fintech startup has made the leap into publicly-traded company: Funding Circle, the peer-to-peer lending platform for small and medium businesses that was originally founded in the UK, opened for trading today on the London Stock Exchange. It was a positive, if not stratospheric, debut. After raising 300 million ($392 million) in its IPO, Funding Circle's stock (trading under FNIG.L) opened at 460 pence. That represented only a small rise of 4.5 percent on its initial offer price of 440 pence per share - which itself was at the lower end of the original range of 420-530 pence set by the company.
The numbers also have not been looking that promising as the day has continued : the stock has gone as low as 435 pence, well below its IPO price, and it is currently trading at 442.15 pence/share.
The float accounted for 29.3 percent of Funding Circle's shares and gives the company a market cap of 1.504 billion (nearly $2 billion in today's currency) based on the number of shares outstanding. (Fully diluted, including vested and unvested options, the valuation is closer to 1.6 billion.)
"We have always believed Funding Circle would be well-suited to the public markets and today's milestone is recognition of the strength and global impact of our model," Samir Desai, CEO and co-founder of Funding Circle, said in a statement. "We look forward to starting this exciting new chapter for the business as we focus on growth across all markets and seek to create a better financial world for small businesses and investors. I am pleased to welcome our new shareholders and I would like to thank my fellow Circlers for all their hard work since we launched. Funding Circle is a very ambitious company and we are excited to continue growing our business over the coming years. The UK is a great place to start and grow a FinTech business and we are proud of today's accomplishment."
The IPO train has been moving swiftly through the world of tech this year - with strong debuts from other European startups like Spotify, Adyen and most recently Farfetch. But not everyone gets to ride in first class. In that context, Funding Circle's conservative pricing and performance might be due to a few reasons.
The company chose to list in London, at a time when the country is in a prolonged period of uncertainty over how Brexit - the process of the UK separating itself from the European Union - will play out. That will have an effect on a number of areas, but one in particular will be how money moves in and out of the UK economy; and given that this is part of what sustains the business model of Funding Circle, you can see how this might impact trading more acutely.
Secondly, we have had a number of fintech and e-commerce IPOs already this year, and so there is less pent-up demand. Thirdly, lending platforms have had ups and downs, and while P2P lending has continued to grow as a compelling and competitive alternative to more traditional sources like direct loans from banks, it's had some volatility. (LendingClub, the first IPO of a P2P lending platform in the US, has never quite recovered from its own difficulties.)
Lastly, Funding Circle itself is seeing revenues growing, but it still operates at a loss. The company said its first-half revenues for the six months that ended in June 2018 were 63 million up from 40.9 million a year before, with loans under management in excess of 2.5 billion. But it also posted a loss of 16.3 million, up from 13.2 million in the same period a year ago.
To shore up investor interest and show commitment from previous investors, Funding Circle said that Heartland A/S, the private holding company of Anders Holch Povlsen (who is a key investor in the company), agreed to purchase 10 percent of the issued ordinary share capital up to a maximum valuation of 1.65 billion. It's not clear yet how much Heartland ultimately snapped up. Other investors in the company - which had raised about $375 million before going public - have included Index, Accel, Ballie Gifford, DST and Union Square Ventures.
The company also said that it was still getting major commitments for monies that would be loaned through its platform. Most recently, Alcentra, a global asset management firm owned by The Bank of New York Mellon Corporation, agreed to lend $1 billion to small businesses the platform in the US.
We'll update this post throughout the trading day.