TURNING TO YOUR PEERS

Frustrated about the lack of finance available for their own businesses, Angus Dent and his colleagues created ArchOver, a peer-to-peer lending platform that helps innovative companies to borrow money at affordable rates.

IT’S a situation in which so many entrepreneurs will have found themselves – you’ve come up with a great idea to expand your business, offering a new product or service to your customers, or expanding into a fresh sector or location. All you need now is the money. And that’s where you hit a snag. While banks may be lending more cash than they were during the aftermath of the global financial crisis, that borrowing often comes at a high price, with unaffordable interest rates or unrealistic expectations about guarantees linked to the family home or other personal assets.

Step forward Angus Dent and his fellow founders at London-based ArchOver. While they were running their own businesses, they came up against that very same obstacle – so they decided to do something about it. They created ArchOver, a peer-to-peer (P2P) lending platform that allows firms that have been operating for more than two years to borrow money from lenders using its website. Companies borrow a minimum of £250,000, with interest rates starting at 7.7% a year. Since it launched in the autumn of 2014, ArchOver has helped its lenders to inject more than £65m into British businesses, bringing in more than £2.5m in interest at an average return of 7.3%. In an age when bank savings accounts are paying less than 0.5%, it’s easy to see the attraction for investors who understand the risks as well as the rewards.

“There’s no typical lender using our platform,” explains Dent. “We have a diverse group of individuals – the minimum amount that you can lend is £1,000 per project, so we have some people who simply have £1,000 to lend and then we have some other individuals who have each lent £2m in total.

“Between those two extremes, you have some people who put in £1,000 a month or £5,000 a month and some who put in £1,000 a quarter. What all of them have in common is that they’re investing on exactly the same basis – they all get the same information on the company and they all get exactly the same interest rate, which we believe is very important.

“As well as the individual lenders, we also have a small group of family offices, which tend to lend larger amounts to each project. We also have some funds that also use us to invest.

“Some larger small and medium-sized enterprises (SMEs) use us for treasury management. If they have spare cash on their balance sheet that they don’t need in their own business and want to earn a decent return on it then they can invest it with us.”

Dent and co-founders Brian Basham and Ian Anderson developed ArchOver during 2013 and then secured a £3m investment during the spring of 2014 from Hampden Group, which provides financial and business support services and manages insurance assets and underwriting capacity in excess of £2bn. As ArchOver’s parent company, Hampden has not only invested in the business itself but has also injected cash to the platform, putting its money where its mouth is and lending to other businesses.

The platform’s P2P lending has appealed to a wide variety of businesses. Autostop Leather – which has been making seat covers and floor mats for car companies such as Ford, Lexus and Toyota since 1991 – borrowed £300,000 via the platform to help it develop new products for its customers.

Ergowealth, which is based at Marlow in Buckinghamshire, was founded in 2013 by a group of financial planners. It borrowed £200,000 through ArchOver to fund the expansion of its mortgage advisory service by using its contracted revenues as security.

TLM Technologies – which offers electronic point-of-sale (EPOS), back office and head office systems – secured not one but two loans through ArchOver, injecting a combined £1.1m into the technology business. The first allowed it to replace its previous invoice finance facility with a 12-month, £600,000 loan secured against its accounts receivable, while the second 12-month loan for £500,000 was based on its contracted revenues from software licenses and service maintenance contracts.

“We started with what you might call ordinary manufacturing businesses, with factory units that produce a certain amount of goods each month,” Dent says. “We’ve then worked with a wider range of businesses, from suppliers to the construction industry through to professional services firms, such as accountants and lawyers.

“A little over a year ago, we realised that – if you look at the equity side of things – companies that have contracted, recurring revenues always attract a premium valuation because they’re predictable and stable. But there was no equivalent on the lending side of things – we thought that was a bit daft because you’re putting yourself in a position where you can’t lend to some of the most stable, cash-generative businesses.

“At the core of those businesses there is usually a very good idea, which you could say is intellectual property (IP). Those sorts of companies with strong IP tend to rent that IP in various forms, often as software or as services.

“So, we put together a service called ‘Secured & Assigned’, which takes that contracted, recurring revenue and wraps it up and almost makes it into an annuity type revenue and, in an intangible way, pops that revenue onto the balance sheet and allows us to lend against it. That extended our focus into another whole group of businesses, into software businesses, into serviced office businesses, into maintenance businesses, into wealth management firms.”

Between £10m and £12m of ArchOver’s lending in 2017 was based around that service, demonstrating the high demand for its financial products. Now, the platform’s latest step is allowing it to work even more closely with IP rich companies.

“Working in those areas led us down the road of looking at how we could help those companies fund their continuing investment in IP,” says Dent. “HM Revenue & Customs pays a research and development (R&D) tax credit, but it takes time even after the year-end to pull the numbers together, file the CT600 form to make the claim and then wait for the Revenue to cogitate.

“In the past few months, we’ve come up with a new service called ‘Research & Development Advance’, which – as the name implies – advances money against the R&D claim that’s due to the company. Two of the first companies to use it work in the security sector, with one developing facial recognition software and the other making body scanners for airports.”

Trust: The Currency of the Future

Angus Dent, chief executive of ArchOver, explains how P2P and the banks can co-exist in fruitful competition underpinned by growing lender trust

Alternative finance may appear to be shaking things up for traditional lenders like the high street banks, but in fact it is injecting a greater sense of consumer trust in the financial industry as a whole. As P2P matures, it must carve out a space for itself that grows this trust while delivering attractive returns.

P2P doesn’t have the scale or the intention to pose a major risk to the big boys, but a shake-up of the ways people access finance can only be a good thing for an industry that has remained largely unchanged for the past 400 years. While radical change in too short a period leads to the type of risk that threatens us all, the P2P sector’s considered approach so far, and its core tenets of lender control and transparency, are inspiring trust in both lenders as well as borrowers. And trust, we all know, is fast becoming the currency of the future.

This is just the start for P2P. As it matures, it will be in a great position to work in tandem with the banks to expand their services.

Working alongside the banks

Until significant scale is achieved in P2P lending, with further products on offer for borrowers and a deeper sense of opportunity for lenders, the banking system is unlikely to invest seriously in the sector. In the US, which is a few years ahead of the UK in respect of funding, P2P has already begun to form a part of the smaller banks’ strategies – which suggests the course the UK market will take.

In this scenario, P2P will remain a bothersome, if small, source of competition rather than a partner asset. That competition will help keep the banks honest: that’s a large part of the true value of P2P.

With all this in mind, the question of whether banks and P2P platforms should collaborate or compete is an important one. For the time being, the fact that P2P and the banks do things very differently is leading to more value being created for both.

Taking P2P to the next level

One of the greatest strengths of P2P is that its business model is based on lenders’ own balance sheets and not that of the P2P company. It is therefore in P2P’s best interests to work at maintaining and growing trust among lenders and borrowers. Competition is always healthy but if it gets in the way of stability and thorough processes, both lenders and borrowers will be negatively impacted.

The biggest challenge faced by borrowers is one of trust – a large portion of the businesses ArchOver represents are owner-managed, with a direct relationship between the businesses performance and the financial wellbeing of its owners. For ArchOver to raise funds for that business takes time, effort, a thorough review of their track record and shared values in terms of trust and honesty.

In the long-run, taking the time out to focus on building trust will strengthen a business while also providing security to the lender – keeping P2P and the financial industry as a whole honest, trustworthy and therefore far more stable.

Majority of savers misunderstand benefits of IFISAs

61% of UK savers acknowledge possibility of higher returns and better interest rates with Innovative Finance ISAs (“IFISA”), but majority still don’t understand the service

London, UK – 2 May 2018 – Over a third (36%) of UK savers would place their money in an IFISA if they had the money available. The question is, what does the industry need to do to gain the trust of the undecided two thirds?

While a large proportion acknowledge the prospect of higher returns (61%) alongside the allure of the tax-free wrapper and greater diversification, the IFISA is still a hard sell, according to research undertaken by P2P lending service ArchOver. In truth, the majority of UK savers (57%) still don’t fully understand the service. Unlike cash ISAs, money invested in an IFISA is not protected under the Financial Services Compensation Scheme. As such, savers need to be confident in the strength and stability of the underlying businesses they are investing in. They must seek out lending schemes that provide deep insight into borrowers as well as all robust processes and security.

IFISAs present a greater risk when compared to a standard cash ISA, but the potential reward is exponentially higher. ArchOver CEO Angus Dent explains, “IFISAs are fundamentally different to cash ISAs in the way they operate. Meeting investors’ expectations and making them feel secure at the same time will require ongoing education. Our research shows that nearly half (48%) of savers are nervous about losing their money, so the industry needs to communicate the benefits and safeguards clearly”.

“The IFISA gives you the freedom and flexibility to choose your own investment. Investors must use that power to choose an option which combines the best elements of P2P lending: thorough due diligence, rigorous lender security and favourable returns. They must do their research to gain insight into the companies they’re investing in and should not ignore the job of diversifying their portfolio to balance out their risk.”

Over a quarter (26%) of savers say they are reassured by regulatory oversight such as the Financial Conduct Authority’s (FCA) recent approval of a number of P2P providers, including ArchOver. Dent reassures concerned savers, saying that “although IFISAs have an associated risk like all investments, investors and savers can get a greater level comfort by choosing a P2P platform that carries out stringent due diligence and credit analysis of all potential borrowers”.

“Now is a crucial time for the sector to raise awareness around IFISAs and how they work. We must make sure that investors and savers have all the information they need when looking at IFISA options. Ultimately, we need to remember why P2P was created in the first place – to offer more choice and transparency when participating in project-by-project lending”, concludes Dent.

M Squared tops the IP League Table again as record number of companies enter the IP100

M Squared tops the IP League Table again as record number of companies enter the IP100.

M Squared, a fast growing Glasgow-based photonics technology business has been announced as the winner of the 2018 IP League Table, seeing off stiff-competition from entrants from all over the UK.

The accolade is announced today (April 26, 2018) to coincide with World Intellectual Property Day, which this year celebrates “Powering change: Women in innovation and creativity”.

The IP League Table ranks companies based on the effectiveness and robustness of their IP assets, and shines the spotlight on IP-rich companies across the UK. A record number of companies – up nearly 50% on last year – entered the rankings.

Entrants benefit from access to the IP100 Club, an exclusive network of IP-rich companies who lead the way in promoting a culture of innovation and IP creation within the UK.

The IP100 entrants can learn a great deal about a variety of IP-related matters including: international IP strategies for companies growing in new territories, maximising the exit value of an IP-rich company, filing software patents, preparing an IP-rich company for investor due diligence and developing an IP strategy.

Furthermore, the IP100 gives entrants greater access to finance which is reflected in them collectively raising more than £60 million in funding over the course of the last 12 months.

Stephen Robertson, director and founder of Metis Partners, said, “This has been a remarkable year with an ever-increasing cohort of smart, dynamic and innovative SMEs. Entrants have ranged from micro-businesses to £50 million AIM-listed companies. The profile of the IP100 rankings has grown significantly through strategic alliances with top level partners including the London Stock Exchange Group and its ELITE programme.

“We will continue to run our hugely successful IP100 Club events, which this year have attracted almost 500 individuals to events in Glasgow, Edinburgh, Birmingham and London.”

M Squared, whose world-leading photonics technology underpins the work of Nobel laureates and Russell Group universities, ranked first overall and scored No.1 in the Brands category. It also placed in the top six in Patents, Critical Databases, Software and Trade Secrets. Its pioneering R&D work impacts on sectors including healthcare, food and drink, security and defence.

Stephen Robertson added: “It is great to see the IP100 entrant pool grow year on year, and we were pleased to hit the 150th entrant earlier this year.

“Our target for 2018 is to reach 250 fast growing IP-rich companies and we are confident the continued success of our entrants combined with our internationalisation plans and our inaugural IP100 Awards dinner, will drive us on towards that target.”

For further information, please contact: Stephen Robertson, Metis Partners, 33 Lynedoch Street, Glasgow, G3 6AA. Tel: 0141 353 3011.
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