Smart50 winner Prospa to ring the ASX bell this week: The path to the lender’s $576 million valuation
Wednesday, June 6, 2018/
Six-year-old small business lender Prospa has led the charge on opening up Australian fintech businesses to shareholders, and is slated to list on the Australian Securities Exchange this week via a $146 million initial public offering.
The winner of the 2016 Smart50 Awards has seen rapid revenue growth as its loan book has expanded since launching in 2012, with founders Beau Bertoli and Greg Moshal appealing to smaller operators in need of business loans, but without the traditional property securities and track records favoured by the big banks.
The business was slated to ring the ASX bell today, but have postponed the listing until Friday as the business seeks “to clarify queries raised by ASIC yesterday in relation to Prospa’s small business loan terms in the context of an industry wide review into financial services small business loan terms”, according to a company spokesperson.
Bertoli and Moshal have previously told SmartCompany they relied on in-depth market research and big data analytics to track what their potential clients needed when it came to finance. The result was the business offering a speedy 10-minute application process for unsecured business loans between $5000 and $250,000.
The fintech sector is watching this ASX listing closely, given the proliferation of online lending competitors that have emerged since Prospa came onto the scene. The company has secured a $146.5 million raise through the issue of more than 40 million shares, bringing its valuation to $576 million.
So how did Prospa get to where it is today? Here are some key milestones:
The company launches with seed funding from Entree Capital and writes first loan of $20,000.
The business makes $1.8 million in revenue in 2013-14, it told SmartCompany as past of the Smart50 Awards. It also raises a further $13 million in debt and equity funding from Entree.
In the 2014-15 financial year, Prospa is doing $10.5 million in revenue and secure its 1000th customer.
2015 and 2016
In the 2015-16 financial year, the business booked $22.3 million in revenue, with the company taking on another $10 million in funding from Entree Capital and other high net worth individuals.
This revenue figure secured the company the number one spot in the Smart50 Awards for 2016, with a three-year revenue growth rate in revenue of more than 1000%.
At this point, the company had written more than $200 million in small business loans. The founders attributed part of their success to their planning initiative “Hungry Cobra”, which saw management create a workflow system where they would see all elements of the loan application process as the customer would see it. This process halved the time for loan assessment and built a larger data pool of consumer behaviour metrics, the founders said.
AirTree Ventures leads a $25 million investment round for Prospa, in what was at the time the largest cash injection into an Australian fintech. Speaking to SmartCompany at the time, Bertoli said the funds would be used in part to help with hiring around 100 new staff members over the coming year, as the company looked towards hitting $500 million in loans.
The company lodges an IPO prospectus with the Australian Securities and Investments Commission in May, looking to raise $145.6 million from selling more than 40 million shares at an offer price of $3.64.
In the prospectus, the company highlights it has a current net loan book worth $200 million, having written $500 million in loans since launching in 2012. Prospa says it made $53 million in net revenue in the 2016-17 financial year, running at a loss of $2 million.
It expects to book a $1.6 million profit this financial year, with forecasted net revenue of $101.5 million.
Alternative lending in the spotlight
Prospa’s rapid growth trajectory has occurred during a rocky period for small businesses and access to finance.
The concerns in this area have been threefold. Firstly, SMEs have struggled to access finance from the big banks, in part because of the the reliance on property ownership as a loan security.
Then there has been the sustained push by the Small Business Ombudsman to ensure small business lending contracts are fair in the first place, with Kate Carnell’s office conducting an inquiry that forced the hands of the big banks to revise their standard form contracts for lending.
In the meantime, the rise of fintechs has occurred, with ASIC data showing a record number of smaller operators are turning to alternative lenders in order to secure funding. But the Ombudsman and banking experts have been watching fintechs like Prospa closely too, concerned that these alternatives present complicated options for small businesses that are difficult to understand.
At the start of the year, a number of fintechs committed to creating a code of conduct in consultation with the Ombudsman, after an inquiry found there was no standard way that these lenders explain to borrowers what their exact repayments will be.
One of these concerns is that some lenders advertise factor rates on interest to be paid, rather than average annual rates. Prospa does use factor rates in advertising, but the company’s prospectus shows the average annual percentage rate on its loans to December 2017 was 41.3%.
The company’s prospectus says it may have to change how it communicates rates in future, either through management’s choice or due to “regulatory changes by the small business industry”.
Speaking to Fairfax this week, Moshal said the business is “very comfortable” working with the Ombudsman around issues of transparency with loan conditions and the business has “always been supportive of transparency”.