New wave of innovation
Crowd2Fund founder and chief executive Chris Hancock has grand ambitions for his SME lending platform. He talks to Andrew Saunders about how he’s helping entrepreneurs while disrupting the disruptors…
ONLY FIVE YEARS OLD and with a modest £25m in loans under its belt so far, Crowd2Fund is not the oldest or largest peer-to-peer lending platform.
But far from feeling disheartened by the successes of larger, more established rivals, founder and chief executive Chris Hancock is more than happy to follow in their footsteps – and use their experience to beat them at their own game as he goes. “I think it is amazing what the likes of Funding Circle, Zopa and CrowdCube have done,” he asserts confidently. “They were the pioneers who paved the way, but there is still plenty of work to be done on tech innovation and improving the user experience.”
Such is the pace of technological change these days, he reckons, that the disruptors themselves soon become ripe for disruption by the next generation of start-ups. “If you look at the trend of big success stories in tech, from Google to Facebook to Apple, it’s not the first wave that really make it, it’s the second,” he comments.
“Why is that? It’s because the market has caught up and been educated, it’s because regulations have been formulated and implemented and it’s because as a company you can learn from what the first wave has done and improve on it.”
With an oversubscribed round of crowdfunding last spring and a current annual growth rate of 317 per cent, Hancock’s small- and medium-sized enterprise (SME) lending platform seems to be doing something right. In fact, Hancock is so confident of the company’s potential that he has set the audacious goal of a £1bn exit by 2022.
Is that a real target or something to aspire to? “If you look at the UK market alone, there’s currently £2bn being transacted in non-bank SME lending, mostly by one main player,” he states. “The market is increasing by 46 per cent compound annual growth rate (CAGR) so the forecast market size by 2022 in £8bn. Of course the market and the competitive circumstances can change, but you would only need 10 per cent of that market to have a £1bn valuation.”
The structure of the economy and of work itself is changing in favour of SMEs, he says – many of which will of course need funding at some point. “The number of small businesses started has doubled since 2010, we’re going through a huge transition in the way we organise for productivity,” Hancock says. “The infrastructure required for individuals to be productive that used to be provided by large inefficient corporations is now provided by the internet.”
So whether it’s marketing, hiring, technology or access to finance, the advantages that once accrued only to giant firms are now available to all, says Hancock – who provides a living example in the fact that he met his director of technology, Bucharest-based Liviu Dragulin, on gig economy hiring site PeoplePerHour. Not the kind of cross-border serendipity that could be relied on in the old offline world.
That’s the big picture. But what are the real-world USPs that might help Crowd2Fund beat the rest and get to that £1bn unicorn status? Firstly, he says, the business is aimed at attracting a community of entrepreneur investors – successful business people who can offer borrowers much more than simply money.
“We are aimed exclusively at entrepreneurs, private individuals,” Hancock explains. “When a business borrows from private individuals they build a community which is there to help support their business. They can go back to them to raise further rounds of funding, and they can also turn them into customers and brand advocates.
“We’ve got 7,500 active investors, we’ve got 300 active loans, have lent £25m and we’re looking to increase volume threefold and lend £40m this year. So if you are a business and you could take £150,000 from Funding Circle, or take £150,000 from us and get access to those sophisticated investors as well – that’s why you should come to us.”
Crowd2Fund is a genuine P2P operator designed to appeal to those sophisticated investors, he says, because of another of its stand-out characteristics – it is a manualpick platform in a world which is increasingly dominated by autoinvest offerings. It also provides an active secondary market via its Exchange facility, providing some liquidity in a typically illiquid sector.
So far, Crowd2Fund’s investors have enjoyed some pretty strong returns – figures from last September showed that 80 per cent of them received more than 8.45 per cent APR after fees and bad debts.
Crowd2Fund was one of the first platforms to launch an Innovative Finance ISA (IFISA) and Hancock is optimistic that there are big potential gains to be made across the whole sector as the IFISA grows in popularity. “The IFISA demonstrates that the government has put its stamp of approval on the market,” says Hancock. “It really opens things up – there’s a vast amount of liquidity there.”
With a total market value of £608bn as of August last year, the UK’s total ISA pot clearly represents a major opportunity – even a small uptick in market share for the IFISA could make a huge difference to Crowd2Fund.
But mindful of the potential for trickier economic times ahead, an opt-in contingency fund has just been launched for those who are happy to sacrifice some of that return for a degree of bad-debt protection.
Hancock and his team have also been working hard on improving the recovery process. “We see there is a big opportunity to get investors more involved in recoveries, potentially allowing them to vote on the next steps in a recovery, and get more transparency on delinquencies,” he comments. “It could really enhance the investor experience and turn something that is seen as a negative experience for investors into a positive one.”
The business uses AI software provider Indebted to help manage delinquent loans more effectively, and will be applying for Open Banking regulatory approval this year too. “The benefit [of Open Banking] for us is that being able to access our clients’ bank transactions will enable us to conduct better risk assessments, and also to maintain repayments more easily,” Hancock explains.
“On the investor side, people won’t have to log in to their online banking to make a transaction, they will be able to add funds with one click which is a much better experience.”
Hancock says his own background in tech and small businesses played a big part in his motivation to start Crowd2Fund in the first place. He comes from a family of entrepreneurs and high achievers – his father and sister both run their own businesses, and his brother is health secretary (and former business and enterprise minister) Matt Hancock.
“I started my first business when I was 16, building websites in the dotcom boom,” he says. “It’s always been in my blood.”
But it was his experience of working in digital marketing with big banks during and after the financial crash that provided the ultimate impetus. “I was doing a big project with Barclay’s stockbrokers and when we had finished I just thought ‘There has got to be a better way’,” he recounts. “My insight was that there were hundreds of billions of pounds in term accounts and savings and that money was not working hard enough. Crowd2Fund was about allowing that money to really be put to work.”
Hancock is proud of the successful borrowers that Crowd2Fund has had a hand in – businesses like high-end ski helmet brand Ruroc, industrial equipment supplier Genpower and reusable bamboo coffee cup business Tosh Products. “I can genuinely say that there have been some amazing entrepreneurs who wouldn’t have the multimillion pound businesses they do now if they hadn’t been through the platform. That is deeply satisfying.”
Never one to let the grass grow under his feet, the energetic Hancock is full of ideas for the next year or so. Plans to set up shop in Australia are already underway, and Hancock is planning to launch a platform to facilitate buying and selling shares in private companies later this year. It will use securitised tokens on a private blockchain and is likely to appeal once again to Crowd2Fund’s entrepreneurial investment base, many of whom will have struggled first-hand to get cash out of equity in an unlisted business.
But surely setting up a stock exchanges presents huge regulatory hurdles? Ah, but it won’t be a stock exchange, more of a bulletin board, says Hancock. “There are some exemptions in place, so long as it’s a relatively simple transaction from one investor to another – a one-to-one relationship, not oneto-many. We will make sure the transaction is carefully designed so that the platform isn’t seen as a stock exchange.”
What are the biggest challenges to achieving his many goals? Given his substantial ambitions for Crowd2Fund it comes as something of a surprise to find that alongside maintaining returns for investors and keeping on the right side of the regulator, he also puts not growing too quickly on the list.
“It is important to make sure that growth is managed effectively – fintechs are not like unregulated tech companies,” he says. “[Unregulated tech companies] arguably have quicker growth and can sustain it for longer periods.”
But unlike all those social media platforms, streaming services or routefinding apps (however enormously successful they may be) even the smallest regulated fintech plays a part in the vital financial infrastructure that underpins national and global commerce. The consequences of business failure are inherently greater.
So Crowd2Fund may be young, but its founder doesn’t lack maturity. “Controlled growth in fintech is important,” Hancock concludes thoughtfully. “Because the market is more sensitive and more intrinsic to our whole system.”
This article featured in the February edition of Peer2Peer Finance News, now available to read online.