Technology

If you were at Disrupt London four years ago you may remember more than a little awkwardnessduring an investor panel whentwo VCs that had invested in European payday loans firm Wonga declined to comment on what had gone wrong at their portfolio company in the wake of a£220M write down.

YesterdaySky Newsreported that those same two, Accel Partners and Balderton Capital, are among a group of Wonga investors that have agreed to inject a further £10M (~$13M) into the business to help fund compensation claims related to its past censured practices.

We&ve reached out to Accel andBalderton for comment.

Prior to the latest emergency funding, Wonga had raised a total of around £145.5M, according to Crunchbase. Its 2011 Series C round was backed by investors including Accel, Oak Investment, Meritech Capital, 83North; while a 2009 Series B included Accel, Balderton, Dawn Capital,HV Holtzbrinck Ventures and 83North.It was founded in the UK in 2006.

By 2014 rising concern about the rates of interest being charged to vulnerable customers on short term loan products led to a regulatory interventionto clean up the sector, and Wonga agreed to write off the loans of 330,000 customers.

It also agreed to waive the interest and fees for a further 45,000 after admitting its automated checks had failed to adequately assess affordability.The algorithmic technology it had touted as its core IP had beenlending money to people who did not have the income to pay it back.

The company was also censured bythe Financial Conduct Authority (FCA) forsending fake lawyers& letters to customers in arrears— and had topay out a further £2.6M in compensation for that.

Four years later Wonga is still paying the bill for its past conduct — in the form of increasing numbers of individual compensation claims.

In a statement issued to Sky News, aWonga Group spokesman said there has been a &marked increase& in compensation claims for legacy loans driven by claims management companies.

&Wonga continues to make progress against the transformation plan set out for the business. In recent months, however, the short-term credit industry has seen a marked increase in claims related to legacy loans, driven principally by claims management company activity,& the spokesman said.

&In line with this changing market environment, Wonga has seen a significant increase in claims related to loans taken out before the current management team joined the business in 2014. As a result, the team has raised £10M of new capital from existing shareholders, who remain fully supportive of managementplans for the business.‎&

According to Sky News, Wonga was on the brink of insolvency when its investors agreed to inject more capital into the business, with CEO Tara Kneafsey‎ warning its institutional shareholders in late May the company risked becoming insolvent without a capital injection.

Following the shredding of its original business model — with the FCAcap of 0.8 per cent per dayfor all high-cost short-term credit loansapplying from January 2015 — Wonga hasbeen loss making for the past several years, reporting a £65M loss for 2016and just over £80M for 2015.

And Sky reports that its latest emergency fundraising took place at valuation of just $30M (£23M) for the business.

This represents a swingeing haircut for a company that, in 2012, had believed it was on a three-year growth path to a £15BN valuation, i.e. off the back of short term loan products that charged annual interests rates as high as 5,853%that were sold to hundreds of thousands of people who couldn&t afford to pay them back.

Wongawebsite now lists as &representative& an APR of 1,460% in an online FAQ— and further claims: &We&ve introduced lots of changes at Wonga to make sure we offer better, fairer loans to customers. We take a responsible approach and lend onlyto those we believe can reasonably afford to repay.&

As part of this process of ‘transformation& — i.e. from algorithmic loan sharking to regulatory compliant short term lending — one recent focus for Wongaexecutive team to try to drum up ethical business has been on offering more flexible loan products.

Sky says Wongaboard has previously expressed confidence it can build a sustainable business, and notes the companyhad been targeting a return to profitability last year but has yet to report its results for 2017.

According to its sources, Wongacashflow situation has become so tight its board is evaluating the sale of some of its assets in addition to raising more debt.

Already last year wonga sold off its German payments business, BillPay, to Klarna — raising around £60M.

Time is running out for the best entrepreneurial tech minds and makers across the Middle East and North Africa to compete inTechCrunch Startup Battlefield MENA 2018, which takes place in Beirut, Lebanon on October 3 at the Beirut Digital District. Applications to our premier startup-pitch competition close in just 24 hours. We&ve been traveling around the Middle East and North Africa meeting incredible entrepreneurs in the regional ecosystem and are excited to shine a light on the brilliant innovation happening there.

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Startup Battlefield MENA 2018 begins with three preliminary rounds — five startups per round will each have six minutes to pitch and present their live demo. The judges have six minutes following each pitch to ask rigorous questions. Thanks to all that free pitch coaching, you&ll be ready to answer them.

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Lettalk eligibility. Here are the basic requirements that founders must meet:

• Have an early-stage company in &launch& stage
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If you&re detail-oriented,read our Startup Battlefield MENA FAQ.

TechCrunch Startup Battlefield MENA 2018 takes place in Beirut, Lebanon on October 3. You have nothing to lose and so much to gain. But you have only 24 hours left to apply. Time runs out onAugust 6 at 9 p.m. PST.Apply here today.

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