P2P group Zopa secures £15m investment from Arrowgrass Capital

Zopa, Europe's largest peer-to-peer loan platform, has secured £15m from London-based hedge fund Arrowgrass Capital Partners in the latest sign of investor interest in companies that use technology to cut banks out of the lending process.

The investment will be used to expand Zopa's UK business and bolster its efforts to familiarise people with "P2P", an industry that allows individuals to lend to each other over the internet and which has grown as banks have scaled back lending since the financial crisis.

Zopa, which did not make a profit last year, would not disclose at what valuation the investment was made, but Arrowgrass fought off other investors including venture capital groups that were hoping to participate in the round.

The fundraising comes as valuations for the most active P2P sites have been rising amid growing interest in the sector.

Lending Club, the largest P2P lender, has issued $3.5bn in loans since 2006 and reached a valuation of $2.3bn late last year. The company is considering a US stock offering expected later this year. Prosper, the next biggest US P2P, raised $25m from investors including BlackRock and Sequoia Capital in September.

Zopa said it was watching developments in the US with interest but had no plans to list on the stock market. The company, which was launched in 2005, has facilitated £455m of loans over the past nine years, most of which have been used to finance new car purchases, home improvements and debt consolidation. In the past three years the number of bad debts have fallen and the company's default rate is now 0.2 per cent.

Last year Zopa doubled its staff to 45 people, after a £4m investment in December 2012 led by Augmentum Capital, which is backed by RIT Capital Partners, Lord Rothschild's London-listed investment trust. It plans to increase staff numbers by 50 per cent in 2014.

The UK's P2P sector is about to come under the jurisdiction of the UK's financial regulator, a move that providers hope will encourage more interest from investors and borrowers.

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The rise of P2P lenders has caused tension with some banks as Wells Fargo, the largest US bank by market value, banned its employees from investing personally in the sector.

Arrowgrass, the $4.5bn hedge fund manager set up by former Deutsche Bank traders in 2008, said it had been evaluating opportunities in the peer-to-peer industry as it matured.

"Traditional banking is becoming increasingly disintermediated by the internet," said chief executive Henry Kenner, who has joined Zopa's board as a non-executive director.

As the alternative finance sector grows it is drawing an increasingly enthusiastic response from institutional investors. On Tuesday Indiegogo, the world's largest crowdfunding platform, announced that it had raised $40m from investors to fund global expansion.

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