Deal in Focus: NVM injects £2m into Lending Works

NVM Private Equity's £2m growth capital investment in Lending Works is one in a series of European peer-to-peer lending platforms attracting attention from private equity. In recent months, Skillion Ventures led a €2m round for Latvian business Mintos and Atomico provided UK-based LendInvest with £17m in series-B funding.

The segment is viewed as a more secure proposition than its counterpart, peer-to-peer equity – commonly referred to as crowdfunding. According to NVM investment manager Charlie Pidgeon: "The risks associated with each are incredibly different. In peer-to-peer lending you're achieving a return of between 5-10%, so you're seeing return on investment almost immediately and you get your investment back. With crowdfunding, there's no time horizon of when you will see returns. The risks are very high compared to peer-to-peer lending, which is at the other end of the scale."

NVM's capital investment will enable the London-based company to undertake a recruitment drive. Lending Works is likely to make appointments to its senior management team over the coming years, with the potential addition of a commercial or operations director, explains Pidgeon. It is also likely to add to its marketing, software development and business development teams.

Additionally, the company will invest in new product development and in its technology infrastructure. "The platform itself is fully operational, but it is always developing," says Pidgeon. "Part of the growth strategy is to find new partners who will source borrowers for them. As part of that, the company will need to build new functionality, integrations and reporting requirements."

Interest in politics
In the weeks prior to the deal completing, Bank of England governor Mark Carney suggested UK interest rates could drop following the country's Brexit vote. With rates having already remained low in the years following the financial crisis – and British savers subsequently struggling to put their money to work – higher-interest lending platforms could prove increasingly popular.

"Peer-to-peer instruments are attractive to savers who want to make returns in those circumstances," says Pidgeon. "It has to be said that if we were able to predict where interest rates would be in 12-18 months, we would all be very rich. It does appear they are likely to drop, but even if they were to rise, peer-to-peer lending platforms would still remain highly efficient and competitive. It is still cheaper and quicker for these platforms to grant loans. The operational advantages will always make them competitive."

You could see this being interesting to another financial institution. For example, challenger banks that are involved in business loans might see this is a way to pull in a consumer loans solution" – Charlie Pidgeon, NVM

NVM has considered a number of potential exit routes for Lending Works. "You could see this being interesting to another financial institution," says Pidgeon. "For example, challenger banks that are involved in business loans might see this as a way to pull in a consumer loans solution." Additionally, he foresees consolidation within the market in the coming years, given the number of new players currently emerging.

The long game
NVM has also considered the possibility of listing the business in future, though this would be a longer-term approach and would be dependent on both the scale and market share Lending Works would be able to achieve.

The transaction marks NVM's second investment in quick succession, having recently led a £3.4m funding round for Avid Technology Group, a producer of electrical components used in the manufacturing of motor vehicles.

Founded in 2012 and launched in January 2014, Lending Works is in the process of launching its Innovative Finance ISA (IFISA) allowing lenders to receive tax-free returns.

People
NVM – Charlie Pidgeon (investment manager)
Lending Works – Nick Harding (CEO).

Advisers
Equity – 2i Consulting, Mark Harrison (financial due diligence); The Smart Cube, Gavin Rankin (commercial due diligence); White and Black, Phil Riman, Stephen Silvester (legal); Bovill, Dena Chadderton (regulatory due diligence); Intuitus, Douglas Eadie (IT due diligence); Continuum, Steve Wycherley (management due diligence).

Further reading

• Expansion

NVM leads £3.4m round for Avid

• 06 Jul 2016

• Expansion

LendInvest receives £17m series-B from Atomico

• 14 Mar 2016

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