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UPDATE 2-Online lender OnDeck Capital's shares soar in debut
December 17, 2014 / 4:06 PM / 3 years ago

UPDATE 2-Online lender OnDeck Capital's shares soar in debut

* Shares rise 40 pct, valuing company at $1.85 bln

* IPO priced at $20/share, above expected range of $16-$18

* Raises $200 mln in IPO (Adds investor and CEO comments, background)

By Neha Dimri

Dec 17 (Reuters) - Shares of OnDeck Capital Inc rose as much as 40 percent in their market debut, underscoring investor appetite for startups using technology to disrupt traditional banking.

The online lender’s shares touched a high of $28 amid heavy trading on Wednesday, valuing the company at about $1.85 billion.

The company’s successful debut follows that of online loan marketplace LendingClub Corp, whose shares rose as much 67 percent in their debut last week.

“Investors wanted to bet on the disruption that is happening in financial services,” OnDeck Chief Executive Noah Breslow told Reuters.

Companies such as OnDeck and LendingClub are cashing in on the demand created by the reluctance of cash-strapped traditional banks to lend to small businesses.

The business has become red hot because of its ability to grow revenue at a lower cost compared to traditional banks, attracting robust funding.

The companies have gained enough critical mass and are going public to accelerate their growth, said Catherine Wood, Chief Executive of ARK Investment Management. ARK Investment is an investor in LendingClub.

OnDeck makes loans using its own pool of funds to small businesses such as hair salons and doctor’s offices, unlike LendingClub, which connects borrowers with lenders on its peer-to-peer network.

OnDeck has lent more than $1.7 billion to small businesses and collected more than 4.4 million payments since its launch in 2007. Loans typically range between $5,000 and $250,000.

The company charges a fee of 2.5 percent per loan plus interest for loans of 6-24 months.

There is a potential $80 billion-$120 billion in unmet demand for small business lines of credit, OnDeck Capital had said in its IPO filing, citing a report by Oliver Wyman, a unit of Marsh & McLennan Co.

OnDeck’s investors include First Round Capital, Google Ventures, Institutional Venture Partners, Tiger Global Private Investment Partner and SAP Ventures.

OnDeck raised $200 million after its initial public offering was priced at $20 per share, well above the expected range of $16-$18.

Morgan Stanley, Merrill Lynch, Pierce, Fenner & Smith, JP Morgan Securities and Deutsche Bank Securities are among underwriters to the IPO.

OnDeck’s shares were up 38 percent at $27.60 in afternoon trading on the New York Stock Exchange. More than 3.5 million shares changed hands, making them among the top traded stocks on the exchange.

Reporting by Neha Dimri in Bengaluru; Editing by Saumyadeb Chakrabarty and Sriraj Kalluvila

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