Funding Circle raises $150 million in investors’ latest fintech bet

Funding Circle has raised $150 million in a monster round of funding that offers the latest evidence that investors are flocking to the burgeoning financial tech sector.

Funding Circle, a website that connects small businesses in need of a loan with lenders, has become one of the leaders in the growing industry of Web-based loan marketplaces disrupting traditional banking. The $150 million round from DST Global, Baillie Gifford, Sands Capital Ventures and Temasek is larger than all of the company’s previous funding rounds combined, and brings the total investments to $273 million.

Funding Circle is tapping into the community of small businesses that may not qualify for a traditional bank loan but is looking for a way to start or grow a business on something other than a credit card.

“There is a huge gap in the market where great Main Street businesses that need $200,000 or $400,000 have trouble,” said Sam Hodges, Funding Circle co-founder and U.S managing director. “Small businesses are underserved in almost every market.”

Spurred by Lending Club’s monster initial public offering in December — a $1 billion deal, the largest IPO from California last year — U.S. VCs are pumping money into apps and Web services such as Funding Circle that aim to reform the banking and loan industry. Silicon Valley financial tech companies raised $391.8 million in the first quarter this year, 21 times more than in the fourth quarter and seven times more than during the same period a year ago, according to data from Thomson Reuters.

The U.K. government recently invested about $60 million into Funding Circle.

Funding Circle, which started in the U.K. in 2010 and opened an office in San Francisco in 2013, has facilitated loans to about 8,000 businesses for a total of $1 billion, according to the company. Investors include everyone from mom-and-pop retail investors to large institutional investors; loan sizes range from $25,000 to $500,000, with interest rates of 6 percent to 21 percent. About $75 million in loans go through Funding Circle to small businesses each month, Hodges said.

Hodges said traditional banks have shown growing interest in working with Funding Circle to lend to small businesses.

“We’re in term-sheet conversations with a number of banks,” he said.

In addition, Funding Circle, which has 280 employees, has bolstered its leadership team by adding former Salesforce executive Chitra Nayak as U.S. chief operating officer and David Yu as global chief product officer. Yu is the former CEO of Betfair, an Internet betting exchange based in the U.K. And Nayak was an early executive at Salesforce, joining in 2007, where she most recently served and chief operating officer.

Photo: Sam Hodges, Funding Circle co-founder and U.S. managing director. Courtesy Funding Circle.

 

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