As Funding Circle becomes the latest big IPO flotation, where can you buy it and how risky could it be?
Peer to peer platform, Funding Circle, has announced a £2bn IPO and floatation on the London Stock Exchange. The company plans to raise £300million in a stock market float which could net its three founders £70 million.
Samir Desai, James Meekings and Andrew Mullinger met at university and launched Funding Circle eight years ago as a way for small businesses to access capital. The platform connects businesses with thousands of investors around the world.
It’s potentially a winning proposition for everyone. Investors make money from the interest charged on their loans, while businesses find a way to access capital at a time when banks are increasingly reluctant to lend. Funding Circle, meanwhile, makes money from an origination fee charged to the businesses on its platform.
Funding Circle shares will be available through stockbrokers like Hargreaves Lansdown who have issued an invitation for potential investors to register and be kept up to date about the deadline for investing. Funding Circle has also said that it expects the shares to be open to its existing investors once it becomes public.
It follows a string of other successful IPOs on the London Stock Exchange. Back in May, Vivo Energy closed the largest Africa-focused IPO for more than a decade with a £2bn valuation. In August, Aston Martin announced it was pushing ahead with its IPO with further details to be announced shortly.
These and other flotations have created plenty of interest, but as ever investing in an IPO is fraught with risk. However, IPOs do offer a chance to invest in a company during a period of growth at a time when it is potentially undervalued and benefit from a rapid rise as the market adjusts.
On the downside, if an IPO is too popular and overpriced valuations could go the opposite direction, and some high-profile IPOs have sunk quickly without trace.
Funding Circle, though, could be a company with plenty of potential. It arrives at a time when start-ups are finding it increasingly difficult to access capital and when investors are looking for new ways to build returns. This is, therefore, a company with much to be excited about and it will be interesting to see where this IPO takes them.
However, Ratesetter, a Funding Circle peer to peer competitor took over companies it lent a collective £80m to in 2017 to avoid bad debts. As Funding Circle itself lends to businesses that sidestep the traditional route of high street banking business loans, it’s safe to assume that the loans they grant have a higher potential default risk. Something to be mindful of…
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Tom Cropper is a financial journalist with work which has appeared in titles such as the Guardian, Euromoney and many others.