Prospa has raised $25 million of new equity to support growth, in a funding round led by AirTree Ventures that values the online business lender at $235 million.
The deal is the largest venture capital investment into an Australian fintech business and comes after AirTree raised a $250 million technology fund last year.
Prospa, whose debt funders include the Carlyle Group, has made $250 million in loans to small business and volumes are increasing after it struck deals with 4000 distribution partners including finance brokers and cloud accounting platforms.
The company also has a distribution partnership with Westpac Banking Corp.
Prospa, which has made 10,000 loans since it was founded in 2011, reckons it has a 51 per cent share of the emerging market for online business lending.
Co-CEO Beau Bertoli said he hopes the company can pass through half a billion dollars of loans this calendar year as it uses its fresh capital to develop new products, including one allowing SMEs to raise funding off invoices. He expects full-time equivalent headcount to double this year, from 120 currently.
'A coming of age' for Aussie fintech
AirTree Ventures' managing partner Craig Blair, a long-time adviser to Prospa, will join the board. He said the deal was a "a coming of age of the fintech sector in Australia".
The series B fundraising round was supported by all existing investors with $11 million of equity having previously been raised from investors including Ironbridge Capital and Entrée Capital.
Prospa has raised more than $100 million of debt with funders include the global alternative asset manager Carlyle and a local financial institution who Prospa will not disclose.
Prospa does not report its level of bad debts. But Greg Moshal, the other co-CEO, said there has been an improvement in credit quality over the past 12 months as the company got a better understanding of the data feeding its credit algorithms.
With rising interest rates being a key risk for online business lenders, given the potential for more customer defaults, Mr Bertoli said it was a fundamental part of the business to have strong, robust and predictable credit models. The capital structure has been designed to "work well in any environment", he said.
Market to hit $20 billion
The online small business lending market could grow to at least $20 billion in the next five years, he said. "We will be the market leader and grow very nicely over the next three years as the market gets established."
A float on the Australian Securities Exchange remains an option at some point in the future, Mr Moshal said, but the timing for that has probably been pushed back given the availability of venture capital.
AirTree's backing of Prospa comes as the latest KPMG Pulse of Fintech report found overall fintech investment in Australia hit a record high of $656 million in 2016, up from $185 million in 2015 and $461 million in 2014. But total global fintech funding fell sharply in 2016 to $US24.7 billion, down from $US46.7 billion a year earlier.
Prospa lends between $5000 and $250,000, unsecured, for up to a year. The average loan size is $25,000. The cost of the loan varies depending on cash flow, the type and quality of each business. But a loan calculator on its website suggests the pricing of a $25,000 loan repaid over six months would start off the equivalent of around 18 per cent per annum. This is roughly the same as borrowing off bank-issued credit cards.
Prospa is currently testing a new product, Invoice Now, which provides cash flow lending against invoices due, which has been closely integrated with the Xero accounting software. Prospa is also exploring business services financing to help small business pay for services like marketing or recruitment.
"Four years ago, non-bank lender brands were foreign to many small business owners, but today we are a very accepted way of accessing finance and Prospa has deep brand recognition across the small business market," Mr Bertoli said. "A lot of small businesses have an affinity with us, and we will use this capital to continue to build the brand further and become a leading lender."
While Westpac partnered with Prospa and Commonwealth Bank of Australia has a relationship with US-listed online business lender OnDeck, National Australia Bank has decided to move more directly into the unsecured SME lending market with its QuickBiz Loan product, which launched last year.
It is competing with Prospa and loans offered by a raft of other new players, including Moula, SpotCap, ThinCats, GetCapital, Capify, Kikka Capital and Bigstone. The future of the online business lending market will be debated at next Monday's AltFi Australasia Summit 2017 in Sydney.
