A fast-growing British digital lender to small businesses has been valued at $2.3bn after the three-year-old company completed a $100m fundraising to help licence its artificial intelligence loan system to other banks outside the UK.
The move is a further sign of how valuations of European fintech companies have soared in recent months as investors have bet that digital disruption will upend the financial sector, as it has in other sectors such as retail and media.
Acorn OakNorth Holdings, which has more than doubled its loan book in excess of $2.2bn since the start of the year, has raised the money from a combination of new and existing investors, including two of Singapore’s state-backed funds: GIC and EDBI.
Dutch bank NIBC, one of the first foreign lenders to license the British digital bank’s automated loan system, has also invested in the company for the first time.
The fundraising, which is set to be announced on Thursday, would value the company at 17 times its pre-tax profits of £10.6m last year. That makes Acorn OakNorth one of the most highly valued of Britain’s new breed of fintech start-ups that have sprung up to challenge the country’s dominant retail banks.
Rishi Khosla, its co-founder and chief executive, said the funds would be used to build up its regulatory capital to back its rapidly expanding loan book and to expand its licensing operations for its artificial loan assessment software outside the UK.
He said the company may consider an initial public offering in future, if its rapid growth means it needs to raise more capital in the future. “Public markets do offer good access to capital,” he told the Financial Times.
“We do have ambitious growth targets and at the moment we are well funded for those, so it is only if we up our business plan that we would need to raise more capital,” he said. “Then we would look at all options.”
Acorn OakNorth, which secured a UK banking licence in 2015, has lent more than $1.7bn to over 300 British companies. Its automated lending tool recommends a customised loan package for a company by crunching as many as 100 public and private sources of data.
The lender’s advisory board includes City grandee Adair Turner, former Conservative party chairman Francis Maude, and Nick Lee, the Bank of England’s ex-head of new banks — appointments which were seen as a seal of approval for the challenger.
The company has about 300 staff, of which about 14 are client-facing loan arrangers. “Doing that level of lending with 14 client-facing people is almost unheard of,” said Mr Khosla. “You would normally have 10-times the number of credit assessment people for that volume of loans.”
It has licensed its automated lending system to just over 10 other lenders in the US, Europe and Asia and expects to reach $5bn of loans handled for them over the platform by the end of the year.
More than 100 of its staff are data scientists and analysts based in India. While much of the credit assessment process is done automatically, Mr Khosla said all borrowers meet the credit committee first.
He said the company aimed to increase the proportion of the loan approval process that is done automatically from just over half to about 80 per cent, but added: “It will always be a mix of person and machine, not just machine.”