Samir Desai / Funding Circle / Building a Better Financial World

Funding Circle

“Building a better financial world”

November 2014

Global leader in marketplace lending to small businesses

2010 – UK; 2013 - US

>$700M total lending

~$60M /month

150%+ p.a growth

~$30M RR annual

revenue

200+ employees

~$120M equity capital

raised from VCs that backed

Facebook, Twitter, Skype,

Betfair

1 3 4 4 714 15 15

2329

3647

6171

94107

129

175

0

20

40

60

80

100

120

140

160

180

200

Fu

nd

ing

Circle

Qua

rte

rly len

din

g (

$M

)

Funding Circle quarterly new lending since inception ($m)

Source: Funding Circle loan book, exchange rate: £1 = $1.66

Funding Circle global new lending growing rapidly

Lessons from a p2p traveller

4

LondonSan Francisco

~20 times in last 15 months

10 major insights

Typical US BorrowerTypical UK borrower

• Av. loan size: $100k ($10k - $1.5m)

• Sales: $1m

• # employees: 8

• # years trading: 8

• Av loan duration: 45 months

• Reason: 46% growth

1. Borrowers are very similar across geographies

Source: Funding Circle loan book

• Av. loan size: $130k ($25k - $500k)

• Sales: $1.6m

• # employees: 10

• # years trading: 8

• Loan duration: 40 months

• Reason: 45% growth

2. So is customer satisfaction

6

UK net promoter score US net promoter score

60%

10%

-20%

0%

20%

40%

60%

80%

100%

Funding Circle US US banks

89%

-11%-20%

0%

20%

40%

60%

80%

100%

FundingCircle UK

UK banks

7.0%

0%

2%

4%

6%

8%

10%

12%

14%

Unlevered Levered

Avg.

net re

turn

Expected Avg. net returns

Expected US avg. net returnUK avg. net return

3. Unlevered expected returns are higher in the US for same risk

of credit

Note: Average net return shows expected return after fees and bad debt but before tax

0%

2%

4%

6%

8%

10%

12%

14%

US loan book

Avg.

net re

turn

Expected avg. net returns Range

~10-14%

The US is a bigger but more inefficient market

4. Banks are beginning to partner with market leaders

8

UK business loans US consumer loans

5. UK exhibits varying degrees of transparency amongst platforms

compared to US

9Source: Nesta Understanding Alternative Finance: The UK Alternative Finance Industry Report 2014

Funding Circle will continue to push the boundaries in this area

Financials

Loan by loan detail

Investor net returns

6. US market more sophisticated for institutional lending;

UK for retail lending

10

0

10

20

30

40

50

60

70

80

90

100

~US market FC

Retail vs institutional mix

Institutional Retail

7. Credit risk learnings and models can be applied across

geographies in small business lending

11

Cumulative loss rates by cohort vs expectations (whole UK portfolio across all risk grades)

Improving default rates are low because of underwriting, not the economy

Key:

12m default rate for

accepts : 12m default

rate for rejects

1:1

1:4

1:3

8. Manual underwriting element improves loss rates by 50%+

12

Boundary model

Credit Model

Manual underwriting

Loan listed

1

2

3

9. State support for alternative finance in UK has added

credibility to sector; so far absent in US…

• £20m committed by UK government via BIS to lend in 2013

• £40m committed by UK government-backed British Business

Bank to lend in 2014

• 10 councils & universities committed £5m to lend to local

SMEs

• Formally regulated by FCA since 1st October; US regulated by

every state, SEC and FINRA (!)

• Funding Circle one of the UK Government’s “Future 50”

companies

13

10. Marketplace lending beginning to solve other problems

14

Funding Circle of the future

Fundamentally

lower cost

First point of

contactGlobal

Partner – part of

infrastructure

• 10-33% market

share - like a bond

market

• $100bn+ lending

p.a.

• Liquidity connects

globally

• SMEs are

underserved in

every market by

banks

• Rise of global

champions – more

like tech than

banking

• Marketplace =

higher % of credits

priced and serviced

• Some banks will

prefer to do small

ticket lending

through

marketplaces

• Best in class

technology; limited

physical locations

• 200%+ RoE vs.

~11% @ banks

• Synthetic leverage

1000x vs. 14x

16

Thank you for listening