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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