Entrepreneurs often thrive in circumstances where traditional, established companies struggle – Microsoft, General Electric and Disney were all started during recessions. Nonetheless, 2008 was a precarious time to set up a mortgage business – as LendInvest co-founders Christian Faes and Ian Thomas candidly pointed out during a recent Leap 100 Breakfast.
Although the online marketplace model had been proven to work – Amazon and eBay had been established over a decade earlier – LendInvest was initially both “offline” and “pretty uninteresting”. It wasn’t until 2012, with £30m investors’ capital under management, that the founders became intrigued by the role tech could play. Fintech was on the rise, and companies like Seedrs acted as inspiration. Tech could create a faster borrower experience, and building an online, easy-to-use investment platform could attract a wider pool of investors.
LendInvest uses tech to match lenders and borrowers. In the early years, its bread and butter was supplying bridging finance to property investors; more recently it has branched into development finance, funding SME property developers to build houses across the UK, and offering buy-to-let mortgages.
On the investor side, the firm offers four broad channels: a Luxembourg domiciled fund, an online investment platform for UK-based high net worth and qualified investors, multiple traditional funding loans from banks, and a retail bond that was listed last year on the London Stock Exchange.
The path to success is littered with unforeseen obstacles, good days can follow bad, tailwinds become headwinds. LendInvest is no exception. When the company was young, raising debt finance often felt like an uphill struggle. “You don’t have a track record, and institutional investors need that to substantiate the lending you’re doing,” says Thomas. It took many air miles and international calls, but eventually an eastern European bank offered a £2m funding line, later increased to £6m. It is now “much easier, and today we can approach bigger institutions and demonstrate our ability to deploy their capital quickly.” The company now manages close to £800m for investors globally.
In 2015, Faes and Thomas sought their first round of external equity backing. LendInvest had hitherto been “bootstrapped”, growing its revenues year-on-year while making a small annual profit. As a self-funded startup, it could remain innovative and focused as it found its feet. “We were convinced back then where the business was headed, and we gradually learnt how to make prospective investors buy into that broader vision,” Faes says.
Holding off on external equity was a hidden blessing: had they secured an early investor with its own vision, they may not have had the freedom to extend the offline business into an online platform as fully as they did. Despite negative perceptions around using an investment bank to support the fundraising process, it seemed the wisest option to Faes and Thomas.
“The whole experience was new. We were rushed off our feet growing a business and needed external support to assemble business models and ensure we were investor-ready,” says Thomas. Stories, heard on the grapevine, of investors with conflicts or founders relinquishing too much control further validated the decision.
While investors will want to meet the businesses directly, aspiring entrepreneurs take note: it helps to enlist investment advisers to “put you in the best light possible before going to market”.