Big Deal: Jimubox joins well-funded peers

The $84m in funding secured by China-based peer-to-peer (P2P) lending platform Jimubox last week indicates the growth of the sector in its home country, which could well spawn a startup that surpasses the success of some of the pioneering US-based lending platforms.

The series C round was led by specialist banking and asset management firm Investec Bank and also featured Haitong Kaiyuan Investment, a division of securities brokerage Haitong Securities, Mandra Capital and Zhong Capital Fund, which joined existing investors such as smartphone maker Xiaomi, Matrix China Partners, Shunwei China Internet Fund, Ventech China and Magic Stone Alternative.

Jimubox operates an online credit marketplace that offers loans to small-to-medium sized businesses and individual borrowers, including features like third party credit enhancement, cash-based security deposits to protect against defaults by borrowers and a borrower-funded mutual risk protection mechanism. It also provides data and documents it cannot display on its main site as an added service to some members.

Explaining its participation in the round, Richard Forlee, CEO and Director of Investec’s Capital Markets division, said: “We have been following the developments of the Chinese financial sector closely, and have looked for ways to participate. Given our banking experience, we were impressed by Jimubox’s understanding and management of credit risk.

The Internet finance sector in China has grown rapidly over the last few years, and P2P is one of the most significant growth areas. Jimubox has emerged as a leading P2P platform in a short period of time. We believe that Jimubox has the potential to become the market leader in this new and exciting sector.”

Jimubox has facilitated about RMB 6bn ($960m) in loans since the service was launched in August 2013. It also raised $37.2m in a September 2014 seed round backed by Xiaomi, Matrix, Shunwei China, Ventech China and Magic Stone, after Ventech had supplied the startup with seed funding.

The $84m in funding is one of three significant rounds to be raised by China-based P2P lending platforms this month. Ppdai secured almost $100m in a series C round co-led by Legend Capital, the corporate venturing unit of conglomerate Legend Holdings, before 9fbank announced a $110m round co-led by IDG Capital, a local affiliate of media company International Data Group, and SIG Asia, a subsidiary of trading and technology firm Susquehanna International Group.

The venture capital money flowing into the sector is reflective of the growth of P2P lending in China. A Bloomberg article in February cited research conducted by Yingcan Group stating that the country is home to some 1,400 lending platforms overseeing about $17.6bn in capital, and the annual value of P2P lending transactions reportedly grew by 13 times between 2012 and 2014.

The sector’s growth is partly due to the high returns it can offer to lenders, as well as the access it could theoretically give to borrowers who are unable to secure loans from traditional banks. That combination, as well as the security that companies need to provide to lenders in order to ensure their platforms are seen as reliable, also makes it vulnerable. Yingcan has tracked 275 P2P lending platforms that went bankrupt or had trouble repaying cash in 2014.

In addition, the sector could hypothetically be affected by state regulation, should the government seek to clamp down on a service that is tightly or wrongly still viewd by many as less reputable than the conventional banks that are being undermined by its business model.

Either way, it appears likely that P2P lending in China could end up being dominated by a few select businesses after the smaller operators are weeded out. This is why gaining VC money and building a reputation early could be crucial for these startups, particularly as bigger fish such as e-commerce company Alibaba, which launched its own P2P platform, Zhao Cai Bao, in April 2014, are already entering the pond.

China’s huge economy and population could well serve to make Jimubox, Ppdai or 9fbank unicorns, and could even enable them to overtake the largest US-based platforms, such as Lending Club, which went public at a $9bn valuation late last year, or Social Finance (SoFi), which is reportedly planning an initial public offering at a $3.5bn valuation later this year.

Investors are clearly willing to back P2P lending in China, with corporates and foreign firms such as UK-based Investec showing an inclination to inject money into the sector. The question is whether the country’s startups can evade regulatory and financial hurdles while continuing to grow at such a rapid clip.