The year is barely two weeks old and we have already learned of IPO plans for two of the world’s leading fintech companies. Funding Circle has become a leading global brand in small business lending with operations in the UK, US, The Netherlands and Germany. Lufax is the Chinese fintech giant that began life as a peer to peer lender back in 2012 but has since expanded to become a leader in online wealth management.
Lufax is Preparing for an April IPO in Hong Kong
Neither IPO is a surprise as both companies have indicated their intentions before. But we now have a clearer indication on the timing. First off the rank will likely be Lufax. The South China Morning Post reported that Lufax is planning to do their IPO in Hong Kong in April at a possible valuation of US$60 billion. This would be more than three times the valuation of their previous funding round in 2016.
I interviewed the CEO of Lufax on the Lend Academy Podcast a few months ago and he said they were ready to go with the IPO but they were waiting for the timing to be right. With more clarity on the regulatory front and no significant negative news coming out of China recently the timing certainly looks to be good. Of course, Lufax has not commented officially on the story but reportedly they have hired bankers including Citic Securities, Citi, JP Morgan, Morgan Stanley and Goldman Sachs.
A Funding Circle IPO in the Fall?
The Funding Circle news actually broke just before the New Year with this article from Sky News. They reported that the company was preparing to hire advisors in the first steps towards an IPO. They are supposedly going to interview investment bankers this quarter with a possible listing in London in late fall which would put us in the latter part of the third quarter.
Funding Circle last raised $100 million a year ago at an unknown valuation but in their previous round in 2015 they were valued at more than $1 billion according to The Wall Street Journal. The Sky News article reported that valuation numbers being discussed, at least by existing investors, was £2 billion.
I spoke briefly with Funding Circle CEO Samir Desai last week and not surprisingly he would not go on the record with a confirmation or denial of any upcoming IPO. The only thing he did say was that the company has made no formal announcement about any IPO plans.
What Does This Mean for the US Market?
While Lufax has no real comps in the US as there is no fintech platform that has more than $77 billion in assets under management. They have no US operations and no plans to start any. So, a successful IPO for Lufax will probably not have much in the way of flow on effects here.
But Funding Circle could be a different story. They have a significant US operation which we learned recently crossed $1 billion in total loans issued. They are by far the largest marketplace lending platform in Europe and are one of the UK’s most valuable fintech companies.
Over the last couple of weeks I have heard many people say that the deflated valuations at Lending Club and OnDeck would negatively impact a Funding Circle valuation. Kadhim Shubber lays out this argument his recent column in the FT. I don’t agree with everything Kadhim shares there, in particular the idea that Funding Circle could be looked at as a Software-as-a-Service (SaaS) business. And I also don’t think Lending Club and OnDeck make good comps for the company.
Funding Circle will be going public on the London Stock Exchange and will be compared to other UK fintech companies, not US companies. In my conversations I have had over the past couple of weeks several people have mentioned an advantage that Funding Circle may have. There are many investors in the UK who have a mandate to invest only in UK companies and they are always looking for new opportunities. Sources have told me that many of these investors may be interested in adding Funding Circle to their investment portfolio.
Anyway, this is all hearsay, we will find out soon enough. A successful Funding Circle IPO, one where the valuation rises after it goes public will be very good for the marketplace lending industry in both the UK and the US. We have had little good news here in the last couple of years when it comes to the public markets and I would very much like to see a success story here. But we all know the public markets can be fickle so there are certainly no guarantees.
Lufax has successfully expanded beyond their original peer to peer loan product. That is now a minor part of their business as they have become the largest online wealth management firm in China. This provides a recurring revenue stream that is uncorrelated to their lending business and will likely help them become the world’s second most valuable fintech company behind Ant Financial when they go public.
Now, Funding Circle is not trying to reach anywhere near the stratospheric valuation of Lufax and they have a very different business. Rather than diversify into multiple products they have one core product: term loans to small business. The market for this one product is huge and still relatively untapped. Small businesses are underserved when it comes to access to credit in most countries in the world and they clearly have room to grow in their two largest markets, the US and UK. It will be very interesting to see if the public markets believe in Funding Circle’s vision and rewards them with something close to the £2 billion valuation being discussed.
We will be watching closely and will report the news on both IPOs if and when they do happen this year.