Wonga.com Ltd., the U.K. provider of online loans, is in discussions to acquire U.S. small business lender On Deck Capital Inc. as it looks to expand into North America, according to a person familiar with the situation.
The deal may be valued at just less than $250 million and discussions are at an advanced stage, said the person, who asked not to be identified discussing a private matter. The two sides may still fail to reach an agreement, the person said.
Acquiring On Deck would allow London-based Wonga to widen its offerings to enterprises and to gain a foothold in the U.S., while also improving the accuracy of its algorithms for determining the creditworthiness of small businesses. The company is considering an initial public offering in New York next year, the person said, and a U.S. acquisition would help make the case for a share sale to American investors.
Andrea Gellert, senior vice president of marketing at On Deck, declined to comment, as did a spokesman for Wonga.
Wonga’s founder, South African-born entrepreneur Errol Damelin, has attracted both praise and criticism for his innovative site, which lends amounts as much as 400 pounds ($641) to first-time borrowers, deducting the payment directly from a bank account at a later date.
British politicians have objected to the site’s fees, which include a “representative” annual interest rate of 4,214 percent. Damelin has said the rate, which the site is obliged to display to customers by law, is inaccurate because Wonga doesn’t loan money for long periods and compares favorably to the cost of a bank overdraft. Wonga in May started a service for small businesses in the U.K.
Still, Wonga may be on track to become one of the most valuable companies to emerge from London’s burgeoning Internet startup landscape. The company is one of the most likely in Europe to achieve a $1 billion valuation next year, along with “Angry Birds” game developer Rovio Entertainment Oy and Klarna AB, an electronic payment platform, according to technology advisory firm Magister Advisors.
Wonga’s investors include venture-capital firms Accel Partners, Balderton Capital and Greylock Partners. New York-based On Deck is backed by investors including SAP Ventures, an arm of SAP AG, and Khosla Ventures, the investment vehicle of Sun Microsystems founder Vinod Khosla.
Both companies promise rapid service to borrowers, with Wonga’s loans often released within minutes and On Deck offering loans as much as $150,000 approved in as little as one business day.
On Deck, started in 2007, provides online loans to small businesses. The company has four regional offices in addition to its headquarters, more than 140 employees and has issued more than $300 million in loans. On Deck uses technology to identify credit-worthy businesses that may struggle to get capital from banks.