If you were at Disrupt London four years ago, you might remember a little embarrassment on an investor panel when two VCs who had invested in European payday loan firm Wonga declined to comment. which was wrong with their holding company following a £ 220million Depreciation.
Sky News reported yesterday that the same two, Accel Partners and Balderton Capital, are part of a group of Wonga investors who have agreed to inject an additional £ 10million (~ $ 13million) into the business. to help fund compensation claims related to its past censored practices. .
We have reached out to Accel and Balderton for comment.
Prior to the latest emergency funding, Wonga had raised a total of around £ 145.5million, according to Crunchbase. Its 2011 Series C cycle was backed by investors such as Accel, Oak Investment, Meritech Capital, 83North; while a 2009 Series B featured Accel, Balderton, Dawn Capital, HV Holtzbrinck Ventures and 83North. It was founded in the UK in 2006.
In 2014, growing concerns about the interest rates charged to vulnerable customers on short-term loan products led to regulatory intervention to clean up the sector, and Wonga has agreed to cancel the loans of 330,000 customers.
He also agreed to waive interest and fees for another 45,000 after admitting that his automated checks failed to adequately assess affordability. The algorithmic technology he presented as his base IP had been lend money to people who did not have the income to pay it back.
The company was also censored by the Financial Conduct Authority (FCA) for sending bogus letters from lawyers to overdue clients – and had to pay an additional £ 2.6million in compensation for it.
Four years later, Wonga is still footing the bill for his past driving, in the form of a growing number of individual compensation claims.
In a statement to Sky News, a spokesperson for the Wonga Group said there had been a “marked increase” in claims for legacy loans induced by claims handling companies.
“Wonga continues to progress against the transformation plan defined for the company. In recent months, however, the short-term credit industry has seen a marked increase in legacy loan claims, mainly due to the activity of claims management companies, ”the spokesperson said.
“In line with this changing market environment, Wonga has seen a significant increase in claims related to loans taken out before the current management team joined the company in 2014. As a result, the team has raised £ 10million. new capital from existing shareholders, who remain fully in favor of management’s plans for the company. ”
According to Sky News, Wonga was on the verge of insolvency when its investors agreed to inject more capital into the company, CEO Tara Kneafsey warned her institutional shareholders in late May that the company risked becoming insolvent without an injection of capital.
After shredding its original business model – with the FCA cap of 0.8% per day for all high-cost short-term credit loans applied from January 2015 – Wonga recorded losses over in recent years, reporting a loss of £ 65million. for 2016 and just over £ 80million for 2015.
And Sky reports that its latest emergency fundraiser was at a valuation of just $ 30million (£ 23million) for the company.
This represents a haircut for a company which in 2012 believed it was on a three-year growth path towards a valuation of £ 15bn, i.e. through short-term loan products that charged annual interest rates of up to 5,853% that were sold to hundreds of thousands of people who could not afford to pay them back.
Wonga’s website now lists an APR of 1,460% as ‘representative’ in an online FAQ – and further states, “We have introduced many changes at Wonga to ensure we are offering better and fairer loans to consumers. clients. We take a responsible approach and only lend to those who we believe can reasonably afford to repay.
As part of this ‘transformation’ process from algorithmic loan sharking to regulatory compliant short-term lending, Wonga’s management team has recently focused on product offering. more flexible lending to try to develop ethical activities.
Sky says Wonga’s board has previously expressed confidence in its ability to build a sustainable business, and notes that the company had aimed for a return to profitability last year but has not yet published its results for 2017.
According to his sources, Wonga’s cash flow situation has become so tight that its board is considering selling some of its assets in addition to raising more debt.
Already last year, wonga sold its German payments business, BillPay, to Klarna, raising around £ 60million.