Funding Circle ⭕

I’ve just been reading The Times’ story about Funding Circle. (paywall :pensive: but you can read 2 free articles a month if you register for an account)

A year after floating at £1.75 billion, Funding Circle’s is valued at £370 million - just £100 million more than its cash reserves :exploding_head:

The valuation sounds overly negative to me, although I can’t think of a suitable benchmark to compare them to, off the top of my head.

One of the main reasons for the fall in their share price is -

In July, Funding Circle sliced forecasts for its revenue growth by half, saying Brexit-driven economic uncertainty had damaged demand for loans. It also said at the time that it had tightened lending to “higher-risk-band businesses”, including start-ups and very small companies. The move is expected to slow the company’s growth but protect returns for investors.

But they also spent 43% of their turnover (not revenue) on marketing :money_with_wings:

Now one of the co-founders is going to step down.

I’m curious to hear what other people think of their prospects now. It’s a shame to see one of the most recent FinTech IPOs end up like this.

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A couple of thoughts quickly came to mind:

  1. Surely Brexit is the macro backdrop of the slowdown on revenue growth, but what about the fact that more and more SMEs go to equity financing through crowdfunding and angels, instead of debt financing? As a startup person myself, I would never consider borrowing money.

  2. In traditional banks, SMEs lending is always the most risky part of the loan book. So the quality of the business model may not be that high anyway? Looking at how it ranks on profitability on our ranking framework, only about 20/100 on profitability.

  3. Everything has a price. How public equity market prices companies is vastly different from VC world. Former cares many things including growth, return, shareholder return etc, whereas the latter may just care about growth. So for an expensively valued company like Funding Circle, the only way to sustain that high valuation is to grow faster than people think. Apparently it failed to achieve that up to this point.

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Why borrow when you can crowdfund???Also Paypal gives amazing loans to business customers,it’s called working capital they loan you example £10,000 and you can choose to payback 15-20-25-30% of your sales it has a set fee for the loan if you choose to pay back 15% you will pay back example £12,000 and if you choose to pay 30% you will pay back £11,200 and the loan is paid back at source with each sale. It also takes seconds to apply and receive your money if you are successful.

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that interest rate or revenue share seems quite high.

Is the lowest revenue share 15%? Not many businesses who need WC loans to do businesses can even make a net profit margin of 15% I guess?

Sorry I never explained properly. When I say 15% I mean that if you make a sale to a customer for £10 then £1.50 or 15% goes towards paying the loan off

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So it takes longer obviously than if you are paying back 30% or £3 for the sale. It is a fixed amount at the beginning of the loan and it takes seconds to receive the money. It’s brilliant,if I had money I would buy shares in Paypal

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Sorry it was me that didn’t understand you

I just sell small stuff on eBay,so it helps me out for stock and tax payments

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it does rank very high on our quality and momentum metric!

even though quite expensive but presumably one can argue that’s justified by the high quality and momentum ranks.

What is the highest score you can get on quality and momentum metric

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This is what I got on the highest 10.

Using today’s rankings, simply averaging Quality and Momentum for you, with a cutoff of $1bn in market cap.

P.s: do your own research as always :smiley:

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:grimacing:

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