Funding Circle and Fintech Valuations

Funding Circle achieved an IPO in September 2018, raising £300 million and valuing the company at £1.5 billion. Since then the share price has fallen by 72 percent

An interesting aspect of this case is that the current price is still above the level of the share price in the first 4 venture rounds (the 4th round was in 2013). Many of the investors in these early rounds would have sold out at the IPO and made a substantial gain. However, the current price is below the level at which shares were issued in the 5th, 6th and 7th rounds of venture investment – and some of these investors were not able to sell all their holdings at the IPO because of lock-ins.

This weak share price performance could be any combination of company specific issues, problems with the business model of online lending marketplaces, or an issue with fintech valuation more generally. However, it illustrates the challenges for later round investors in highly valued fintech companies. Excessive valuations at early rounds can also be a problem for founders and early stage investors if an exit is not achieved at a level above the later round valuations. This can lead to heavy dilution if later stage investors are given downside protections.

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