U.K. peer-to-peer lending start-up Funding Circle has raised £82 million ($100 million) in a vote of confidence for the young industry even after the Brexit vote last year.
The round was led by global venture capital firm Accel with participation from existing Funding Circle investors including DST Global, Index Ventures and Temasek.
"We are a fintech business and we are all about delivering a world class service to businesses and investors and to make sure we have the best product we imagine. We wanted to raise more funds to invest in our technology," James Meekings, co-founder of Funding Circle, told CNBC by phone.
Online peer-to-peer lending is a relatively new way for businesses to access capital. A firm can apply for a loan on Funding Circle and is then matched with investors who could be a mixture of individuals, government or large financial institutions. A business makes repayments to Funding Circle with interest which is then distributed to the investors.
Funding Circle said lending through the platform passed £2.5 billion globally in 2016. The company has offices in London, San Francisco, Berlin and the Netherlands. Britain is the biggest market for Funding Circle with £800 million of its total £1.1 billion given to small businesses being lent through the U.K. platform.
But Funding Circle is facing increased competition in the peer-to-peer as well as broader lending space. Services such as the U.K.'s Funding Tree, or crowdfunding services like Seedrs pose competition to Funding Circle, while it also comes up against other rivals like Zopa.
The market is set for continued growth of around 53 percent per year between 2016 and 2020, according to analysis firm Research and Markets, but the industry hasn't had a smooth path. U.S. peer-to-peer firm Lending Club was plunged into crisis last year after an internal review found issues with the company's lending practices which led to the firing of CEO and founder Renaud Laplanche.
U.K. watchdog the Financial Conduct Authority (FCA) said in December that there is "evidence of potential investor detriment" in the peer-to-peer lending industry and that it proposes "strengthening rules in this area". Some of the issues the FCA flagged up included promotions for websites that did not meet the requirement to be "clear, fair and not misleading", difficulty of comparing different platforms, and business practices that are not up to the right standard.
Meekings said he does not worry about this being a headwind for Funding Circle as it's already adhering to all of the FCA's proposals, but the entire industry could benefit from stricter rules.
"We 100 percent believe what the FCA came out with. People lend money through our platform so it's only right they understand the risk and they see the return they are earning," Meekings told CNBC.
"In the current regulation there is no stipulation of what data platforms need to show to investors to make sure they need to understand the risk or return on loans which is bizarre given it's an investment product. It's something we have done but some smaller platforms don't do it."
Funding Circle said its U.K. business was cash-flow positive in the fourth quarter of 2016 – meaning that money inflows were higher than outflows.
Meekings said Funding Circle is not yet profitable because it has been in "investment mode", but said positive cash flow in the fourth quarter is evidence that the business model works.
"That's a choice for us when we want to become profitable. Our view is we wanted to bring the U.K. business to be profitable which we evidenced in (the fourth quarter), in other markets we want to make sure we are investing," Meekings said.
The co-founder added that there were "no immediate plans" to go public.