What does the Funding Circle / Zencap Deal Mean?

The big news at LendIt conference this week in London was that Funding Circle announced the acquisition of German marketplace Zencap. Zencap launched in March 2014 and facilitated SME loans in Germany, the Netherlands and Spain. Working with local teams, the IT infrastructure is run from the headquarter in Berlin.

Samir Desai announcing the acquisition

Zencap has originated more than 35M EUR loans since launch with a monthly volume of 4-5M in the last months. The vast majority of this volume was generated in German loans.

With the acquisition Zencap will become Funding Circle Central Europe and the founders Matthias Knecht and Christian Grobe will head this division. Knecht confirmed that Funding Circle paid in stock through a stock swap. All existing investors stayed onboard. No details on the valuation were publicly available. Knecht said at Lendit that talks between Funding Circle and Zencap started as early as Lendit 2014.

Allegedly Zencap has been trying to raise a new round since May 2015 but struggeled. A source from the VC scene told me that he thinks, that Rocket Internet – the backer of Zencap – might have concluded, that it is more important to prove that Rocket Internet is able to deliver successful exits rather than close another round which might not meet high expectations of onlookers.

What does the deal mean for Funding Circle?

I feel that Funding Circle essentially invests in the future outlook. The current volumes of Zencap are solid but not spectacular. So essentially the deal enables Funding Circle to jump from serving two markets to five markets (even though NL and ES are very small so far) without starting from scratch. They also get local teams that are familiar with the markets and their circumstances.
For Funding Circle Central Europe it means easy access to a large base of institutional investors that are already familiar with the Funding Circle brand and can now diversify into SME loan markets in continental Europe.

When I look at the platforms in continental Europe, Zencap is the obvious choice as acquisition target. It is the only platform with a SME loan model very similar to Funding Circle that already operated in multiple markets.

Knecht said at Lendit that he is looking at Italy and France as markets that look interesting for a further expansion.

What does the deal mean for retail investors?

Unlike on other marketplaces there will be no cross-border lending for retail investors on Funding Circle. Both Samir and Knecht explain that the mid-term outlook for this is that retail investors will be able to invest into loans in multiple geographies via a coming fund.
The German platform receives some critic from retail investors, which complain that it is less than perfect and reporting and processes need to improve. This got me wondering for a short while whether the British platform would be used to replace the IT for the continental European markets too. However when I asked Knecht at the conference, he said that there are no plans for that, and that Funding Circle would continue to run seperate IT platforms. Continue reading

Rumour: Is Funding Circle Buying Zencap?

There is an article in a German startup news magazine speculating that Funding Circle might have bought German p2p lending marketplace for SME loans Zencap from Rocket Internet or is in the process of doing so. The article does not provide any evidence but cites unnamed entrepreneural sources.

I reached out to both Funding Circle and Zencap for comment today but have not heard back yet. EDIT: I received a reply from Zencap that they do not comment on rumours/speculations.
I also checked the filing history of the commercial register and there have been no telltale filings on the Zencap file in the past months, therefore I doubt a sale has been completed. But it still is a possibility because it likely would take some time for the filing to appear.

While I don’t have any hard facts either, I think the scenario has some plausibility. In emails I exchanged with a Zencap founder in the past months, there have been hints about upcoming major developments (without any specifics) at Zencap. Also it would match the intentions of Funding Circle to move into continental Europe. Continue reading

Zencap says Shortage of New Loans is Caused by New ‘Retail Investor Protection Act’

Zencap LogoGerman marketplace Zencap says the ‘Retail Investor Protection Act (Kleinanlegerschutzgesetz)’, passed into law in July 2015, is the main cause for a shortage of new loans on offer to retail investors on the platform. While Zencap welcomes regulatory guidelines, the company thinks that this law was not thoroughly thought out. Zencap stated: ‘For investors it is confusing that an investment into loans to companies for an amount of more than 100,000 Euro should be subject to different regulatory conditions than loans below that amount.’ (own translation from German original source).

While Zencap could offer loans regardless of size to retail investors in the past, it is has now restricted its offer to retails investors in Germany to loans up to 100,000 Euro as it would be forced to serve a prospectus (‘Vermögensinformationsblatt’) for which the borrowing company would be liable. Continue reading

Zencap Secures 230 Million EUR from Victory Park Capital

Zencap logoZencap  will receive 230M EUR in investments from Victory Park Capital over a three year period, under an exclusive agreement. Vivtory Park Capital, an asset management firm focused on middle market debt and equity investments, will invest the amount into SME loans originated on the p2p lending marketplace Zencap. The partners are teaming up to provide small and medium-sized enterprises (SMEs) in Germany, Netherlands and Spain with efficient, fast and easy access to capital. Zencap allows SMEs to apply for loans between 5.000 and 250.000 EUR.

Under the terms of the preferred partnership agreement, VPC will be the largest institutional investor on the P2P platform and has secured a credit facility from a leading global bank to leverage Zencap loans at favorable rates. The transaction represents the largest commitment to an online lending platform in Continental Europe and underlines the increasing importance of the sector.

“We are impressed with the Zencap team’s ability to execute an ambitious strategy, and their results in the three countries they operate in give us confidence that this emerging platform is serving a critical market need,” said Gordon Watson, principal at Victory Park Capital. “With this additional lending facility, Zencap will be well positioned to continue to achieve substantial growth over the near term and firmly establish itself as a market leader in Continental Europe.”

Matthias Knecht, co-founder and managing director of Zencap, added, ‘We are excited to announce this long-term, strategic partnership with VPC, the leading investor in the industry. This groundbreaking transaction will help to further accelerate our growth and support us in our mission to provide fast and seamless access to capital for small businesses in Europe.’

One Year Invested in Zencap

This is a guest post by German investor Martin R.. The article was written in April.

These days, Zencap celebrates its first anniversary. I’ve been involved right from the beginning and invested the full 10k€ you can invest without having a premium account.

Zencap – my characteristics

Zencap offers investment in corporate loans. You invest 100 EUR in one loan. The total loan is usually between some 10,000 EUR and approximately 200,000€. There are different scoring classes essentially determining the interest rates which are usually located between 5% and a little over 10%. The loan term ranges from 3 months up to 5 years, the main focus being 3 years. As the loans are instalment loans, you will usually have half of your investment plus interests available after 18 months. The nominal interest rates are decreased by 1% through fees for the investor. The loan listings are presented with a short description and have differently detailed documents attached. Some projects have personal sureties.

My experiences

are mixed. I’m rather satisfied with a yield of about 5.7% and no payment delays up to now. The payout takes place promptly after the scheduled payment at the 15th of each month. The bidding amounts are straightforwardly drawn through direct debit, however, the period between bidding and drawdown drag on very long from time to time (debiting is just before the first paying out, though). Now and then there are special promotions which increase the yield (see below). Continue reading

New Figures on Lendico and Zencap

Lendico and Zencap are German p2p lending services. They are separate companies, but both are founded/backed by Rocket Internet.

Lendico

Lendico is a p2p lending service with consumers as borrowers and has been rolled out in 6 national markets so far. See my previous articles on Lendico for more details. Lendico management did not give any official figures on loan origination amounts in the past. That’s the reason that Lendico is not included in my monthly loan volume stats tables. But in the context of the Rocket Internet IPO some figures and estimates became available.
An estimate says that Lendico Germany originated 1 million EUR loan volume in the first 6 months of 2014. The following are hard (official) figures:

  • Lendico loan volume stats for month ending Jan, 31st 2014: 2,343 loan applications received, 23 loans issued, 112K EUR loan volume originated
  • Lendico loan volume stats for month ending June, 30st 2014: 5,675 loan applications received, 65 loans issued, 376K EUR loan volume originated
  • Lendico number of unique visitors in month ending Jan, 31st 2014: 46K
  • Lendico number of unique visitors in month ending Jun, 30st 2014: 143K
  • Lendico net loss in 2013 was 3.2 million EUR. Note that Lendico launched in Dec. 2013
  • Rocket Internet states Lendico valuation to be 120 million EUR in July 2014

Based on non-representative lender postings on the Lendico forum at P2P-Kredite.com it seems that no Lendico (Germany) loans have defaulted yet and only very few have gone temporarily overdue. Continue reading

Rocket Internet Launches Second P2P Lending Service: Zencap

Rocket Internet, the venture fund of the Samwer brothers, launches a second p2p lending service (after Lendico in December). Zencap will facilitate loans from 10,000 to 150,000 Euro to companies. To qualifiy the company has to be trading for at least two years, have solid financials and total revenue of more than a 100,000 Euro. Nominal interest rates range from 4 to 14.6%. Zencap charges borrowers 1 to 4.5% origination fees (dependant on loan term; possible are 6 to 60 months). Lenders can start lending with 100 Euro and are charged 1% or all repayments. Zencap expects default rates between 0% and 10% depending on credit grade.

Christian Grobe, founder and CEO of Zencap says (translation from German original): “About 99% of all companies in Germany are SMEs, who together generate yearly revenues of over 2000 billion Euro. SMEs are the backbone of the German economy. Getting loans is a long and bureaucratice process for these companies, often ending in frustration, since 20% of all loan negotiations with German banks fail (source: KfW-Mittelstandspanel). We want to remove these hurdles with Zencap and offer SMEs an easy and unbureaucratic altenative to banks.”


Zencap founders Dr. Christian Grobe und Dr. Matthias Knecht, both previously worked at McKinsey & Company (photo source: Zencap)