Despite only being founded in 2015, OakNorth Bank‘s loan book now stands at £800m – providing growth funds for the likes of Leon and Brasserie Blanc.
However, wanting to further capitalise on the increasing need from British growth businesses and entrepreneurs for expansion capital, OakNorth set about securing its own war chest by closing its largest institutional funding round to date. At the helm of this was Cristina Alba Ochoa, who joined the company as CFO in March 2017.
Why was now the right time to raise institutional funding for OakNorth?
Since our launch in September 2015, we’ve grown our loan book to over £800m, helping businesses across the UK achieve their growth ambitions, so we’ve proven our model. This funding was therefore needed to take the business to the next stage of its growth and help us lend a further £1.5bn in 2018.
We also felt now was the opportune time to bring our fintech platform, ACORN machine to market. It enables lenders around the world to originate, underwrite, monitor, and book transactions faster, more efficiently and with more rigour.
How did you go about finding backers which could provide institutional funding?
We had several existing relationships with institutional investors and knew of a handful who were interested so we decided to organise a process, bringing in Morgan Stanley and Citi to help arrange the transaction.
What are the differences when it comes to closing a £154m round when compared to, say, a £5m one?
The main difference is that smaller raises are usually done through targeting investors that the founders, senior management and others in the organisation know. The investors are usually familiar with the business and might have already participated in previous rounds.
With larger raises, there is a need to engage with external advisors who can support the business through the process – in this case, it was Morgan Stanley and Citi. Therefore, the preparation regarding data, forecasts, governance and overall due diligence is much more in depth and rigorous with a big raise.
New investors and larger institutional funding partners will drill into the numbers a lot more and will have much more specific questions than those who are already invested, know the group, or are investing a fraction of the amount.
How does raising money as a bank differ from other types of businesses?
This was a very interesting raise because it wasn’t only for a bank (OakNorth), it was also for a fintech platform (ACORN machine). It is for this reason that we achieved the valuation we did ($1.2bn+) as it was focused on the strong results of OakNorth and the growth potential of both entities.
For a pure bank raise, there is a lot more focus on regulatory compliance, governance, credit risk, interest rates risk and operational efficiency. We also had to look at metrics such as: how many businesses in the UK we’ve helped, the contribution this has had on the company, the expected growth of the loan book in the future, etc. Whereas for a fintech platform, most of the focus is on the data, the types of technology being used (e.g. AI, machine learning, the cloud, etc.) and the processes.
We had to demonstrate how ACORN will help lenders around the world unlock the potential in bespoke lending to SMEs. We had to conduct demos where we took investors through the step-by-step process of how banks and lending institutions will use it.
As the new CFO at OakNorth, how much of a challenge was this fundraising and what have you learnt most?
I think the biggest challenge for me, but also the biggest learning, lay in the preparation of the management presentation and the “teaser” pack. We of course know the business and future growth strategy inside out, but the challenge is being able to explain this and condense it into a pitch that may only last an hour or so.
There is a risk that you spend too long on certain elements and not enough on others, or that you don’t delve deep enough into certain areas that an investor is most interested in. Moreover, investors often come to meetings with a pre-disposition and very specific assumptions which can be hard to address with just one document and 60 minutes. This was only magnified by the fact that we were pitching to two very different types of investors: those who were interested in OakNorth (the bank) and those who were interested in ACORN (the fintech platform).
How does this role differ from previous ones?
For the prior 18 years before I joined OakNorth, I was in a big corporation (GE Capital) where the ultimate decision maker in many circumstances wasn’t me. Here, every decision on finance from the small to the big is down to me.
In terms of the actual working environment, there are more similarities than you might think as GE Capital was organised into small local banks and financial companies, so adopted a similar fast-paced and entrepreneurial approach as OakNorth.
What new skill sets have you had to develop to thrive in the challenger bank space?
You must become much more resourceful in a challenger banking environment than an incumbent or traditional one. External networking is also extremely important for all new banks, as well as effective communication because you’re often approaching certain activities for the first time – e.g. how to implement regulation and guidelines that haven’t necessarily been designed with challenger banks in mind.
Where does this funding round position OakNorth and what is in store next?
The funding that we have achieved (£154m) has exceeded expectations as we were targeting £100-£125m. This capital will enable us to continue supporting UK businesses, lending a further £1.5bn next year, and allow lenders in other geographies to unlock the bespoke SME lending space through ACORN machine.