In a stunning example of a home-grown start-up disrupting a huge, established market with the help of technology, online short-term lender Wonga has raised £73m from some of the world's leading VC firms this week to develop its innovative lending platform further.
Wonga's mammoth £73m funding round was led by global technology investment firm Oak Investment Partners. VC heavyweights Meritech Capital Partners (backers of Facebook) and Wellcome Trust, the UK charity and health-funding organisation also invested, as well as existing backers Accel Partners, Balderton Capital, Dawn Capital, Greylock Partners and TAG.
This marks the third investment round for Wonga, which was launched by Damelin in 2007 on the back of £3m from Balderton Capital and went on to secure a further $22.25m in June 2009.
It's little wonder Wonga has caught the eye of some of the world's hottest investors. Its loan application and approval platform (which the company has spent three years developing) can analyse thousands of pieces of data in under a second to determine a user's credit risk. Real-time decisions and payments can be provided around the clock, and if approved, the cash will be in a user's bank account within an hour.
However, the real draw for investors, says Smarta 100 winner Damelin, is that while the back-end is super complex, the front end - whether on a PC or smartphone - is blissfully simple, and crucially, transparent. Users control (and can clearly see) exactly how much they're borrowing, how long for, and how much it will cost them.
"We found a real interest out there to back disruptive consumer-centric businesses that are scaling fast - and Wonga certainly is," Damelin told Smarta.
"The investors saw a company that had built world-class technology to automate the provision of loans for the first time, a product that is super transparent and that customers love, as well as a fantastic, inter-disciplinary team that is executing way beyond expectation."
The firm's innovative proposition has unsurprisingly spawned a number of copycats. But Damelin claims Wonga is still the only fully automated application and straight-through loan processing system. The firm, which recently approved its millionth loan, has processed more than 1.8 million applications to date, and is looking to dedicate the lion's share of the new funding to developing its technology even further.
Short-term lenders have attracted some negative publicity, with headlines focusing on the firm's 3,000% APRs, but Damelin insists this is an unfair and misleading metric for short-term loans, and that Wonga is all about responsible lending.
The maximum loan term is 30 days (apparently most users repay within this time) and its credit rating system strongly discourages the extension of any debts. The maximum loan amount is £1,000, and only users who have already proved their ability to repay loans on the site can borrow this much. (You can find out more about Wonga's business model in our interview with Errol Damelin.)
Customers are typically young professionals who have access to other forms of credit and are attracted to the short-term nature of the service, says Damelin, who likens Wonga to getting a taxi rather than taking the tube - you pay a premium for the speed and convenience.
In other words, it is positioned towards those who are experiencing a temporary cashflow shortfall, rather than a permanent cash shortage. It's not intended for those who need the cash to live on or providing the type of long-term borrowing that encourages debt-dependency.
Damelin says the firm is growing a new market, offering an alternative to overdrafts and credit cards, and the fundraising was prompted by "a response to the strong consumer demand for this type of small, short-term loan", which Wonga can now scale up to serve.
So is he hoping the deal will finally lay to rest any lingering doubts about the firm's lending practices?
"We're totally dedicated to providing responsible solutions that are fast and convenient - but also transparent, flexible and very selective. We've reset the watermark on responsible lending and I'm super proud of that. We now have seven world class investors that have clearly endorsed our practices and approach," replies Damelin.
It surely provides a sense of vindication, but Damelin says he takes more pleasure from the work his team has achieved. "I'm most proud of our awesome team and how well we're functioning. We've built a high performance culture that's recreated a new sense of what's possible."
And does he have a clearer exit plan now? "We're not thinking about exit," he says. "We're thinking about how to build a great long-term business that disrupts the status quo and provides customers with a great alternative to banks and credit card companies."