The online lending sector may have witnessed intensified scrutiny in the recent past due to unfavorable publicity in the San Bernardino attacks and other legal cases questioning the regulations imposed on the sector. But that does not take away from the fact that analysts expect the volume of loans extended by marketplace lenders to grow 47% annually through 2020. The worrying circumstances have sent valuations of some of the companies like OnDeck and Lending Club declining, but Avant is still making it big and investing in growth.
In 2012, serial entrepreneur Al Goldstein realized that the majority of demand for loans came from customers earning between $50,000-$60,000 a year with credit scores ranging between 600-700. He also realized that companies giving the loans were not leveraging technology and analytics effectively to offer loans to these consumers. Al therefore connected with his former interns Paul Zhang and John Sun to set up AvantCredit. The company was founded with a vision to build an online capital line that could leverage Big Data analytics to create an online-only financing solution.
Like others in the field, Avant uses online tools for loan application and analysis to offer loans and determine the interest rate for approved loans. For more than half of the applications, loans are approved or rejected within a few minutes of application without any human interaction. But the biggest difference between Avant and its other contemporaries lies in the market they cater to and the funds they use to provide loans. Avant focuses on the sub-prime borrowers and thus sees a higher default rate, about 10% more than competitors. Additionally, Avant does not follow peer-to-peer lending. Instead, it issues debt on its own and assumes the risk associated with the loans. Driven by the success in the local markets, Avant extended its presence to the UK and Canadian markets as well.
Since inception, Avant has provided a loan portfolio of over $2 billion processed to over 350,000 customers across the three countries. The company does not declare detailed financials, but according to market reports, revenues have increased from $7 million in 2013 to $75 million in 2014. The company in October 2015 had said that its revenues were on track to reach $275 million in 2015.
Avant continues to see additional market opportunities and is now in the process of releasing its own auto loans and credit cards in the US. According to an Equifax report, more than a third of all auto loans, personal loans, and credit card loans are taken out by sub-prime borrowers. Avant hopes to address this market with its new products. International expansion is expected to continue with Australia being the next target market.
Since Avant services loans by itself, it has received a much higher funding as well. It has raised $1.73 billion in debt and venture funding so far with investments from August Capital, Balyasny Asset Management, DFJ Growth, General Atlantic, JP Morgan Chase & Co., KKR, Mark Friedgan, Peter Thiel, QED Investors, RRE Ventures, Tiger Global Management, Jeffries Group, and Victory Park Capital. Its last round of funding was held in September 2015 when it raised $325 million at a valuation of nearly $2 billion compared with a $875 million valuation in early 2015.
In June 2015, Avant was looking to go public within the next 3-5 years, or even sooner. However, recent regulatory concerns over the online lending sector have hurt the valuations of publicly listed Lending Club and OnDeck. Other companies like SocialFinance have also deferred plans to list and are waiting on the market conditions to improve. Avant may like to wait and watch market conditions before deciding on when to list.
This segment is a part in the series : 2016 IPO Prospects