Assetz Capital

Idea

Introduction

Assetz Capital is the leading property-secured business Peer to Peer (P2P) lender in the UK and Europe, and the second largest overall general business P2P lender–behind only Funding Circle. We provide loans to SMEs and property developers in the UK, funded by both individuals and increasing numbers of institutional investors, companies and even banks who come through us for origination of loan investments.

Our P2P loan investments allow investors to earn a return on their capital, with over 30,000 lenders now able to invest in our investment accounts, having funded over £750m of facilities and earned £70m to date. Now that we are well established, our aim is to create the foremost Lending-as-a-Service marketplace for property-secured UK SME lending and to be a substantial part of the solution for the banking, investment, housing and pensions challenges that the country faces… helping to create Banking 2.0.

We believe that we have now achieved critical mass and have proven our business model - having been profitable in both of the last two financial years to March 2018, a rare achievement in FinTech - and we believe that the opportunity for our further growth to meet the multi-billion funding gap faced by SMEs remains very substantial.

Last year we have seen revenues for the business grow again. We are reinvesting any profits at present in order to drive the continued rapid growth of the company and with the aim of making us the dominant business in our sectors. This will help us to continue the success of the company, having been recognised this year as one of the UK’s top 100 fastest growing technology companies in the Sunday Times Tech Track 100 last year with revenue growth of 78% over 3 years and being ahead of all but one of our peer group in that index. As we continue to grow and mature, and also onboard substantial new institutional lending capital alongside retail funds, we expect profits to grow.

Assetz Capital is authorised and regulated by the FCA.

Convertible Details

This investment round is being raised by way of a convertible equity investment instrument, in this case a "deferred subscription agreement".

The key terms that apply to the Assetz Capital deferred subscription agreement are set out in the Key Terms Document attached to this campaign. In Summary:

Conversion of the deferred subscription agreement will take place:

• On a Qualifying Equity Fundraise of £1,000,000 or more, at the lower of (i) a 10% discount to the share price paid by investors in the Qualifying Equity Fundraise, or (ii) the share price based on a valuation cap of £72,000,000 (the discount does not apply to this valuation cap).

• If no Qualifying Equity Fundraise has occurred, on the “Longstop Date”, (which will be the 31st of March 2020), or a winding up event, conversion will happen on the Longstop Date or the winding up event at a share price of £2.35 (equivalent to a pre-money valuation of £52,241,926.45), or, if lower, the price per share issued after the date of the deferred subscription agreement.

• If a change of control or IPO occurs prior to the above events, conversion will automatically trigger at a price per share which is the lower of (i) the lowest price per share issued or sold as apart of an IPO or change of control, discounted by 10%, or (ii) the share price based on a valuation cap of £72,000,000.

Intended impact

Assetz Capital was founded to grow the availability of business funding in the UK with the aim to deliver attractive rates of interest to the investors who fund those loans. After the first six years of operation we are confident that we have established that our business model can achieve both objectives efficiently, profitably and at scale.

We see traditional banks as providing the ‘foundation’ capital to SME businesses in the UK, keeping the machine of the economy turning, with alternative finance such as ourselves providing the ‘growth’ capital required for GDP and employment to grow. We are now a meaningful contributor to that funding having in the 12 months to June 2018 provided an astounding new net lending equivalent to circa 40% of the £348m new net lending (increase in the size of the current loan book) to SMEs by the UK banks in that period (source: Bank of England). Bank net lending year on year has since fallen to zero as at December 2018.

We plan to continue to scale up, with the aim of becoming one of the largest secured business lenders in the UK. We aim to help:

• Private investors achieve a fair interest rate in the face of poor returns on bank savings accounts, annual losses against inflation and often volatile returns from equity investments.
• Creditworthy businesses develop and grow their companies through secured credit.

Ultimately, we believe that our success is based upon our mantra, “Fairer growth for all” where borrowers, lenders, staff and shareholders all win by being in balance with each other.

Substantial accomplishments to date

Since commencing lending in April 2013, Assetz Capital has proven its position as a leading brand in the alternative business lending market and as a leading online investment platform for P2P secured business loan investments:

• We are the leading property-secured business P2P lender in the UK and Europe, and the second largest overall business P2P lender (secured or unsecured) in the UK and Europe - behind only Funding Circle who recently listed for around £1.5bn.

• We have arranged loans of over £775m since commencing in April 2013, with £300m in the last year alone and 2018 lending was over 140% of 2017 lending volumes.

• We are ranked 53rd out of the UK’s top 100 fastest-growing technology companies in the Sunday Times Tech Track 100, with 78% average revenue growth per annum for the three financial years to March 2018.

• Scalable, cost efficient, proprietary technology platform running on Amazon Web Services (AWS) and enabling an excellent customer experience.

• Our investors have earned £70m of gross interest before tax.

• Funding is now diversified with institutional funding from banks, funds and investment managers accelerating strongly – with many more funding relationships in late stage negotiation or with term sheets.

• Proven platform capable of supporting continuing growth.

• Deeply experienced management team in place, and a Relationship Director team across the whole UK, with a bias towards the regions (i.e. outside of London/the M25).

• Critical mass has been achieved and revenues of circa 17m in the last financial year and we aim for substantial further growth this year.

• Our IFISA now has over 4,500 investors and £70m invested - the IFISA represents a sizeable opportunity for attracting future funding through a movement away from Cash ISAs with the majority of our investors who are replacing their ISA's, replacing their cash ISA investments with our IFISA.

*source: unaudited management accounts.

Monetisation strategy

We charge our business borrowers an arrangement fee of typically 2-5% of the loan inclusive of any introducer commission that we pay and we also charge the borrower a loan monitoring and servicing fee (typically 0.9-2% pa).

Investors do not currently pay fees for buying, holding or reselling loans on our marketplace although this remains under review. We pay capital into the discretionary provision funds that the we operate to protect lenders from losses on loans within our various investment accounts. Excess funds beyond those required to cover actual losses over time can also be taken to profit.

As we attract more and more capital from investors and build our track record and loan book performance data we expect our cost of capital (the interest rate required by investors) to continue to lower, potentially both improving our margins and also tightening the rates at which we can potentially fund better quality business loans, making us both more competitive and profitable.

Our lending is supported by the smart application of technology - with our website being the front end to a proprietary, sophisticated loan management system – that allows us to be operationally efficient and highly scalable and that has played a substantial part in our growth.

Use of proceeds

This Seedrs funding round is a precursor to, and component of, a larger anticipated institutional funding round. This funding round is to support the next substantial phase of our growth, further strengthen our cash levels and balance sheet, as well as to provide a further opportunity for our shareholders and customers to participate in supporting the business’s continued success. The funds will be utilised for the following projects:

• To secure new institutional funding facilities and fund those set up costs. These are additional loan funding facilities that will become significant long-term sources of funding for our lending.

• Further substantial investment in the technology team and resources to accelerate on-boarding of new Lending-as-a-Service partners and other strategic software project initiatives.

• Permitting advanced cashflow funding of some investor loan losses and recovery costs, where we also have a reasonable expectation of later recovery from security and legal action, in order to improve the investor experience and also treat customers fairly.

• Launch a new line of smaller, mass market secured lending products: suited to the large marketplace of mainstream commercial mortgages and residential property refurbishment loans sourced through national brokers and distributors.

• Support the marketing costs for continued retail and business funding acquisition, as well as borrower loan origination. This is in the form of promotional costs, transactional costs for relationships with introducers and other financial platforms and advertising.

• Working capital to support the enlarged company scale.

• Substantially growing the team size over time from the current 100 to over 200 staff.

An IPO also continues to be evaluated as a future step and the recent Funding Circle IPO is acknowledged.

Please refer to the Key Information document attached to the campaign for further important information about Assetz Capital and this funding round.

NOTICES

Please note, Assetz Capital Ltd currently has 3 outstanding loans totalling £2,976,279.18. This consists of one non-interest long-term loan of £900,000, a second convertible loan note of £195,811.45, and an unsecured long-term loan of £1,880,467.73.

Assetz SME Capital Ltd, a subsidiary of Assetz Capital Ltd, has 2 outstanding loans totalling £524,054.13. This consists of one secured short-term loan of £100,000 and another secured short-term loan of £424,054.13.

Investor funds will not be used for the repayment of any loans.