Neu Capital ready to disrupt mid-market fundraising

While Cyrus Church and Edward Jones were working for Royal Bank of Scotland in Sydney offloading corporate loan portfolios in the wake of the financial crisis, the opacity of fundraising for mid-market companies became starkly apparent.

Church recalls large sales of RBS loans such as Royal North Shore Hospital and the Cross City Tunnel running smoothly as “they were clean processes, the universe of investors was known and the information quality was sound. But as soon as you delve into some of the smaller, mid-market companies, it was extremely clunky and manual. We thought: surely there is a way to use technology to make the process more efficient?”

Inspired by the emergence of fintech marketplaces like peer-to-peer lenders for personal loans and various online lenders to small business, Jones left RBS in December 2014 to begin building Neu Capital. It is set to launch in the coming months. “We are helping to shine a light on a very opaque market,” Jones says.

Church came on board after leaving RBS in April last year. The former investment bankers were joined by Joshua Khoddami, who had worked as general manager of a large digital marketing agency in Sydney. The three co-founders are self-funding the start-up, which has desks at both the Stone & Chalk and Tyro fintech hubs.

Church won’t reveal how many investors have been admitted to the platform but says the pool of capital available to borrowers is deep and international. Each investor has been vetted by Neu Capital and represent a mix of credit funds and other non-bank lenders, including some based in the US, Britain and Asia, along with offices of wealthy families and private equity firms.

By standardising the information used by investors to assess companies and hosting this in an integrated data room in the cloud along with video pitches from the business owners, the platform offers to substantially reduce the costs of investor due diligence.

It also promises to save corporate advisers from repeating pitches on cold calls to potential investors while opening up to them more diverse pools of capital. Neu Capital is targeting equity or debt deals of between $5 million and $30 million. Many of these are currently arranged by accounting firms, dozens of boutique advisers and hundreds of single-person advisory shops.

“We are disrupting those advisers who are selling their network and not adding any value to the company in terms of strategy and information gathering,” Church says. “We are a big threat to those 1980s dinosaurs with the Rolodexes on their desks – they will die out as more people use this sort of technology.”

Borrowers are also approved before deals go onto the platform, which will not be made available to start-ups. Rather, the focus is established companies seeking growth funding for acquisitions or expansion; funding for ownership transitions; refinancing of bank debt that may have fallen outside revised lending terms; and distressed situations. Neu Capital has arrangements with Grant Thornton and Nexia Australia to help customer referrals. Borrowers retain control over which investors see information and initial soundings are kept anonymous.

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Source: Neu Capital ready to disrupt mid-market fundraising | afr.com