Online finance broker Car Loan 4U has received an £8m investment from UK venture capital firm Scottish Equity Partners (SEP), with SEP partner Andrew Davison being made a member of Car Loan 4U’s board as a part of the deal.
The deal took the form of an equity investment, though the extent of SEP’s stake has not been revealed.
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To put the investment into perspective, Car Loan 4U reported a turnover of £11m over the past 12 months following a strong year during which the company experienced 75% growth and staff numbers reaching 150.
The same period also saw the company named the 23rd fastest-growing digital company in Europe, with the number of unique visitors rising 142% in the 12 months to June 2013. It was also named the most visited online car broker website in the country by Experian Hitwise last February.
Additionally, co-founders James Wilkinson and Ryan Dignan made the Motor Finance Power 50 in January 2014, alongside industry director Carl Eccles.
The deal is the first time SEP has dipped its toe in the motor finance industry, and its choice of investment hints at where the company feels the industry is going.
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By GlobalDataAccording to Davison, the number of visits made to a dealership in respect of a car purchase has fallen from about five to 1.3 times over the past five years as consumers increasingly come to rely on the internet for research.
Despite this move away from the dealership, "only 1-2% of the related finance is secured online", compared to nearly 50% penetration rate in insurance, said Davison.
He continued "We believe this low level of internet penetration, coupled with a proposition focused solely on a car purchase, presents an attractive and growing opportunity for online specialist lenders."
SEP isn’t the only company to believe greater internet penetration is on the horizon for motor finance.
In January, Auto Retail Network and GfK urged companies to embrace future technology, while iVendi called on manufactures to update their websites in light of its increasing usage.
Additionally, SEP believes the increasing amount of regulation and associated risks for lenders will possibly drive the number of lenders down, and that those that survive will be well placed to take advantage of this opportunity.
The reason SEP invested in Car Loan 4U specifically is that it believes the company is in a strong position to capitalise on all these factors, with Davison saying it is "both profitable and growing strongly and we are just at the beginning in terms of the use of the internet in financial services".
James Wilkinson, Car Loan 4U chief executive officer, also explained how the investment will be used to enable the
company to grow. "The online opportunity in the car finance industry is huge," Wilkinson said. "This investment will allow us to accelerate innovations in our technology and deliver a vastly improved customer experience, as well as expanding our brand."
Davison agrees, saying the capital injection will allow the company to increase its brand awareness and to "capitalise on the trend towards greater online loan provision."
Since the initial investment, the two companies have begun work on a number of projects, including recruitment where, according to Davison: "SEP is already working with the company on a recruitment process to enhance the team including introducing chairman candidates to help build out the board.
"On the executive side, we’re looking to support the existing management team. We now have a shortlist for chief technology officer and a long-list for a head of marketing."
He says the aim is to bring in people who have experience of high growth and expansion, and SEP is also supporting Car Loan 4U build its tech team as it seeks to make its processes fully automated.
Davison also said SEP is currently not evaluating any other specifically motor finance companies, saying "SEP takes a portfolio approach to investment and it is unlikely we would make any other investments from our current fund into this niche sector."
