Britain’s financial technology (fintech) sector has its first billion-dollar business. The crowdfunding platform Funding Circle’s announcement last week that it had completed a $150m fundraising means the business, launched less than five years ago, is now valued at $1bn – and the financing round was over-subscribed.
It is no surprise that a peer-to-peer lender offering finance to small and medium-sized enterprises is the first business in the booming world of fintech to break through the billion-dollar mark. This is an industry that has posted, on aggregate, compound annual growth of more than 100 per cent over the past three years in a market climate where the stars appear to be perfectly aligned in its favour.
Funding Circle is benefiting from the abject failure of the large banks to lend to small businesses, despite the supportive environment for growing companies. Last week’s Bank of England Trends in Lending report showed that yet again, lending to small and medium-sized enterprises fell over the three months to the end of February, by 1.8 per cent compared with the same period of last year. The Bank’s Funding for Lending scheme, designed to encourage banks to lend more to small businesses, actually saw these borrowers pay down £800m of debt, rather than take on new funding.
Crowdfunding platforms are getting huge support from policymakers: not only courtesy of a string of tax breaks, including the forthcoming eligibility of peer-to-peer finance for individual savings account (Isa) investors, but also thanks to direct government finance being made available on several sites.
Then there is the institutional investment support. Investors ranging from private equity funds to occupational pension schemes are attracted to the dependable income streams generated by peer-to-peer lenders and are ploughing funds into the sector.
The fact that platforms must now be authorised by the Financial Conduct Authority has given them much greater credibility (though the decision to exclude the sector from the Financial Services Compensation Scheme, which offers depositors’ insurance, was mean-spirited).
Increasing diversity is also in the sector’s favour. Alongside platforms lending money to small businesses sit a string of other alternatives: the likes of Zopa and Ratesetter in the consumer finance market, for example, Market Invoice, offering invoice finance to SMEs, Trillion Fund and Abundance offering renewable energy projects. Then there are a string of platforms offering equity finance, led by Seedrs, Crowdcube and Syndicate Room.
For certain companies, the concept of crowdfunding now feels so mainstream that they do not even feel the need to use one of these platforms as an intermediary. Last week, Brewdog, a Scottish brewing company, announced a £25m equity issue that it will run itself.
There will be setbacks and consolidation. The number of launches in the sector increases by the week (the FCA has a six-month waiting list for authorisation) and not all will succeed. Nevertheless, crowdfunding is a remarkable success story for the fintech industry. And there is no reason why it cannot grow even more dramatically.
Uncertainty over backlog of business rate appeals
Thousands of businesses are still waiting for a decision on appeals they have made against their business rate charges, 18 months or more after they filed their claims. Data released by the Valuation Office Agency (VOA) suggests that 19,400 companies that claim they were overcharged for business rates have still to receive rulings on their cases, even though they made their appeals before the end of September 2013.
In September 2013 the Government promised to resolve 95 per cent of almost 149,000 cases outstanding at that date by July 2015 – the clear-up rate currently stands at 88 per cent. Since then, however, further appeals have stacked up – the latest figures, published in November, suggested that 114,000 cases were outstanding in England and Wales.
Debbie Warwick, head of business rates at the property consultancy Daniel Watney, warned there could have been an increase in appeals after an announcement last year that no backdated refunds would be made on appeals made after 1 April this year.
“We await confirmation of how many appeals have been received by the VOA since September 2013 and how many of these remain unresolved,” she said. “Until we know this, it is unclear whether appeals are being settled any quicker or whether there still remains a large backlog.”
‘Makerspaces’ offer shared equipment to innovators
All hail the rise of the “makerspace” – community spaces offering public, shared access to high-end manufacturing equipment. The innovation charity Nesta says the UK now has 97 of these venues, compared with just nine in 2010, with nearly every city home to at least one and many regions having several.
Makerspaces tend to be founded by informal groups on a localised basis and are often staffed largely by volunteers – they may offer public access on a pay-as-you-go basis or via membership fees and provide a wide range of tools and technologies, ranging from woodworking equipment to computing facilities.
Nesta believes the makerspace community could make an important contribution to innovation and entrepreneurship. “Makerspaces are well connected with their local communities as well as other makerspaces,” the group says. See www.nesta.org.uk for details.
Small Business Person of the Week: Phil Chalk, Managing director, Factory
“We’re probably best-known as the co-producer of Newzoids [pictured], the topical animation show on ITV, but our background is in children’s television.
“Five years ago a small team of us were working for another animation company on shows such as Bob the Builder. That company went under in the wake of the financial crisis but we were able to buy out its facilities and launch Factory.
“Initially, we wanted to finish the contracts we’d been working on, but we soon realised we had a sustainable business.
“Our breakthrough was a commission for CBBC, Strange Hill High – it was a hit and got bought by Netflix for the US.
“As well as Newzoids, we’re remaking The Clangers for a 21st-century audience on CBeebies, and we’re also making Scream Street, to air on CBBC.
“It’s been a huge learning curve, managing the creative process alongside the business itself. We hired an operations director who had previously been a director of a US packaging company, and he’s been a huge help, but we’ve really had to work it out as we go along.
“In animation once you have a commission, you’ve got good visibility of your work stream over the next couple of years, which gives you time to plan. But you have to be incredibly disciplined about your finances – we run every single project as a self-financing entity.”