Timing is everything in comedy and business – just ask Peter O’Mahony. For the Linked Finance founder, strokes of luck have chimed with timeous planning with his various ventures over the years. With Linked Finance, O’Mahony introduced peer-to-peer lending or crowdfunding to Ireland in 2013, when cash-starved companies couldn’t get a hearing with the banks. “I read at the time that SME debt was €45bn while household savings were €90bn. It seemed so simple. If you could get even a percentage of that money moving you could sort out the SME problem,” says O’Mahony.

The arrangement convenes an audience of casual private investors looking to lend small sums of cash to needy businesses. On the Linked Finance platform, the borrowers display themselves warts and all and lenders bid to offer cash at the most favourable repayment rates. The borrower either gets funded or doesn’t, while in the middle Linked Finance takes a slice of the action.

Funky

Since launching, Linked Finance has facilitated over 200 loans, totalling more than €5m, from a community of some 8,000 lenders. O’Mahony says that the average loan size is €24,000 and the average borrowing rate is 9.1%. For Linked Finance to prosper, it needs a lot more throughput, and venture capitalist Shay Garvey believes his firepower can accelerate borrower interest.

Garvey was a partner for 18 years in Delta Partners, Ireland’s longest-established non-bank VC player. He left Delta and set up Frontline Ventures in 2012, and the image it portrays through its website is decidedly funky. “Frontline Ventures is Europe’s first community-focused fund, creating a platform for innovative tech entrepreneurs building capital-efficient businesses in high-growth markets,” the company declares.

In Association with

Garvey was in the audience when Feargal Quinn launched Linked Finance in the Merrion Hotel two years ago and obviously he has been impressed by the company’s development. So much so that Frontline ponied up €1,500,000 of equity investment into Linked P2P Ltd in January 2015. More cash has been pledged, with Linked Finance stating that Frontline’s investment is €2.5m,

According to O’Mahony, 49, the plan is to strengthen the team, hit the marketing trail and then expand into Europe within the next 12 months. “In Ireland, we want to facilitate €20m in lending to SMEs in 2015, rising to €250m to 5,000 Irish businesses in 2017,” O’Mahony adds.

Linked Finance booked a loss of €183,000 in the year to April 2013 and O’Mahony pitched his business to potential investors on the basis of its long-term prospects. “We had met Shay Garvey while trying to raise seed capital before launching and we kept in touch,” says O’Mahony. “We worked with Frontline for about six months before we both got comfortable. We had three other offers on the table and decided to go with Shay and Frontline because they’re the best fit.”

O’Mahony explains that he and Garvey want to expand Linked Finance into Europe with back-office operations in Dublin and marketing teams based locally in the relevant markets. The only question that remains is what European country to target first.

Fateful Win

Linked Finance’s offices span two floors of a building on Lr Liffey Street in Dublin, a fact noted externally by no more than a tiny name caption beneath a door buzzer. Behind the steel door, winding flights of blue-hued and featureless concrete stairs lead to the Linked Finance office, where a display case shows off merchandise from some of the firms that Linked Finance has funded. Leo Burdock’s, Vitz Drinks and Lolly & Cooks are among the more recognisable names.

Punctuated by sips of tea, O’Mahony recounts his career, which started off selling office equipment. “I was listening to the radio and heard about a competition with a prize of £1,000 – this was around 1988. I entered and won and I was sure that it was a calling, because I had an idea that I was desperate to make happen.”

O’Mahony used the winnings to move to London and work on a board game called ‘Insider Dealing’. “I met a firm of commodity brokers in and told them about my idea. They thought that this little Irishman was funny so they backed me for it,” O’Mahony recalls.

The launch coincided with Ivan Boesky and Mike Milken being indicted in an insider trading scandal. That helped garner publicity in the financial press and the game was a big seller in New York toy stores. There was talk of developing a second game but O’Mahony sold his stake and bought the printer in London that had made the game. He spent the next 12 years building Hamilton Printers into a B2B direct mail provider, but then tired of England and decided to return home.

Laughter Lounge

“I arranged a goodbye party for my staff in a comedy club and I thought the setup there was amazing. It occurred to me that something like that would work in Dublin. I came across an old cinema on Eden Quay and set up the Laughter Lounge in 1997.” He still owns that business (it booked a loss of €114,000 in 2013) but stepped back from day-to-day operations to focus on Linked Finance.

O’Mahony says that it was his experience of running a business in London with no easy way of attracting outside investment that got him thinking about crowdfunding. “I thought that I had invented a totally new idea but when I did some research I found that a company called Zopa had done this in the UK for five years. I arranged to meet them and they explained how the whole thing worked.”

With €200,000 backing from the taxpayer through an Enterprise Ireland payment, Liked Finance was launched in February 2013. “Feargal Quinn and Bobby Kerr said they would be lenders, which helped to quickly build trust. The day we launched I did a radio interview on RTE and in the next few days €150,000 was placed in client accounts. People were obviously ready for a business like this to happen.”

Lending through Linked Finance is not without risk. If borrowers default, the lenders lose out. So far, there have been zero defaults and zero arrears. “That’s not because we’re brilliant at credit-checking, it’s because we help create a trusted community,” says O’Mahony. “It’s the ‘community effect’ in action: the borrower actually cares about who he or she is paying back.”

Charges

Not everyone need apply to use the Linked Finance platform. The company weeds out no-hopers and the rejection rate for putative borrowers is 40%. Among the borrowers who get listed, businesses in the food and retail sector predominate. “Lenders like a business where they can feel, taste or touch the products,” says O’Mahony. “But we’ve also facilitated complicated medical device companies.”

As well as a €70 sign-up fee, Linked Finance charges borrowers 2.5% of whatever they raise. Lenders are charged an annual service fee of 1.2% of the value of all of their outstanding loans at the end of every month. The fee is deducted from the lender’s account on a proportional basis each month when they receive a repayment from a borrower. “The fees are small so our business needs to have lots of loans going through,” says O’Mahony.

With the VC cash, Linked Finance has money for hiring talent.
The new chief operating officer is Lloyd Nolan, who was previously operations director of Symantec’s EMEA customer management centre. “Lloyd grew turnover from €20m to €750m for Symantec in the EMEA region and none of us have worked anywhere that has experienced that kind of growth. We’re probably punching above our weight with this appointment but our view is that we’ll grow into needing someone like him as we expand,” says O’Mahony.

Linked Finance recently doubled the maximum limit that companies can borrow to €100,000. This enticed in Pulse College, which provides training courses in audio, music, film, gaming and animation, to seek a €60,000 loan to buy equipment. As of June 2013, Pulse had outstanding loan and lease borrowings of €329,000 included in total liabilities of €891,000.

To fill larger loan requests, Linked Finance will also have to expand its pool of lenders. “We have figured out how to communicate with companies that haven’t heard of us and we now have the manpower to get out and talk to those businesses. We feel that we could go anywhere we want with the business right now.”