7 February, 2018

Funding Circle IPO: Reflective of P2P Lending Mass-market Appeal?

Funding Circle IPO: Reflective of P2P Lending Mass-market Appeal?

Funding Circle, the UK’s largest peer to peer lending platform (P2P), is preparing to go public in 2018. Despite few firm details being advanced by the platform’s directors, such as the amount intended to raise or time of float, the initial purchase offering (IPO) could happen in the 2nd half of 2018 according to a Sky News report. After notable IPOs in the global P2P market in recent years, such as US P2P giant Lending Club (valued at $5.4billion at time of listing), Funding Circle could become the first UK P2P platform to float, listing at £1bn according to sources. Backers of the platform, however, believe it could be twice that value; the platform raised £82 million in a private capital-raising in January 2017, valuing the business at £990m. Whatever the valuation and amount raised, an IPO in the national market would solidify the UK’s position as a global leader in P2P lending and, more importantly, may confirm the appeal of the asset class to a mainstream audience.

Funding Circle growth signals potential global dominance

Funding Circle, launched in 2010, facilitates loans between investors and businesses in the respective UK, US, German and Netherlands markets. The platform has originated just under £3.1bn worth of loans in its primary market, the UK, to approximately 40,000 borrowers in 7 years (data accurate for end December 2017). The graph below shows that Funding Circle originated £1.26bn worth of loans in 2017 and has retained steady growth, with a 35% increase in lending 2015 to 2016, and 34% 2016 to 2017.

Figure 1: Funding Circle Amount Lent & AUM (Source: Orca Analytics)

According to the Group – Funding Circle Holdings Ltd – accounts for year ended December 2016, Funding Circle on-boarded 15,000 investors in 2016 taking the Group total to approximately 70,000. A primary Group objective is to reach a level where origination reaches $100bn (£70bn) worth of loans annually. This ambition has been supported by significant investment in technology, marketing and staffing, which resulted in the Group making a loss for 2016.

Despite loss-making, the Group increased revenue by 59% and the UK business was cash-flow positive in Q4 2016 and also through the first half of 2017.

Funding Circle geographies

The Group operates across a number of markets globally, with subsidiaries in the UK, US, Germany, Netherlands and Spain.

Here is the Group subsidiary breakdown, which can also be found in the December 2016 Group accounts:

UK: 5

US: 5

Germany: 4

Netherlands: 1

Spain: 1

Despite the UK accounting for 1/3 of the Group’s subsidiaries, 58% of the Group’s 2016 revenue (total £50,877,669) can be attributed to UK operations. Moreover, the Group’s Rest of the World revenue only rose from £8.2m to £11.6m 2015 to 2016, while UK revenue rose from £23.8m to £39.3m, respectively.

This potentially highlights the difficulties faced when entering new markets for UK P2P platforms; US incumbents such as LendingClub and Prosper dominate locally, and what’s more there’s a clear concentration on institutional capital in the US market compared with a more retail-focused UK market. Also, other European markets haven’t matured to the extent of the UK and US. Regardless, Funding Circle is certainly leading the way in the UK in addressing global expansion.

Funding Circle attracts institutional investment

Perhaps most notably in recent growth statistics, the platform has seen substantial volumes of institutional capital invest across the platform. Since end 2015, institutional investors have provided the majority of lending capital, as can be seen below with the 2017 bar illustrating the split of retail capital (£493.3million) versus institutional capital (£769.6m). This surge in institutional capital, not just across Funding Circle but other major UK P2P players too, has fuelled a debate around the true nature of “peer to peer lending” and whether institutions are being favoured over self-directed retail investors – something which will continue to be debated as P2P matures.

Figure 2: Funding Circle investor type breakdown (Source: Orca Analytics)

Other landmark events have supported the notion that institutions are becoming more attracted to P2P lending.

Funding Circle securitisation

In April 2016, Funding Circle facilitated the first securitisation of small business loans originated via a lending platform in Europe. The transaction, known as SBOLT, was rated by Moody’s and Standard and Poor’s. Part of the Class A Notes were sold to the German state development bank (“KfW”) with the benefit of a AAA/Aaa guarantee from the European Investment Fund (“EIF”). This was a landmark as it was the first time both KfW and the EIF had invested in a securitisation of loans originated through a lending platform.

Funding Circle SME Income Fund (“FCIF”)

Having raised £150m in an IPO on the London Stock Exchange, the FCIF began purchasing loans in Germany and Netherlands after initial loan purchases were made through Funding Circle’s UK and US lending platforms.

Funding Circle fundraises

Since 2012, Funding Circle has raised eight funding rounds, equating to $413.2m. The most notable investors include Accel Partners, British Business Bank, BlackRock, Index Ventures, Rocket Internet and Baillie Gifford. Collectively, Funding Circle backers manage approximately $5 trillion, indicating the magnitude of potential that lies in store for peer to peer lending as an asset class if platforms continue to attract such sizeable investors.


Approximately 30% of lending capital derives from institutional investors in P2P lending currently, suggestive of an expansion into a richer, mainstream demographic. The asset class has and will continue to face scrutiny from members of wider investment audiences, however, given its relative infancy and lack of experience in economic downturns.  For institutions, the promise of uncorrelated yield is something not to be dismissed. And as long as the asset class continues to deliver stable, predictable returns, it won’t be. Funding Circle’s IPO, if it comes, will be another landmark event in peer to peer lending’s evolutionary journey, helping propel the asset class into the mainstream.