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Wonga secures $22.25m of new finance

Wonga.com , the online loans company, has secured $22.25m (£13.9m) of new finance in a deal led by Accel Partners and Greylock Partners. It is one of the biggest private equity funding rounds in Europe this year, exceeding the $17m raised by Seatwave this month.Wonga's original private equity backers, Balderton Capital, also put further cash into the business.The company, founded by Errol Damelin and Jonty Hurwitz, provides short-term loans of up to £750 for consumers over the internet. Banks' reluctance to lend during the credit crunch has led many people to turn to alternative sources of financing such Wonga. In spite of being launched just 11 months ago, it has already advanced 100,000 loans and is expecting revenues of £15m this year.It is also already profitable, thanks to a combination of high interest rates - 1 per cent per day - and a highly selective approach to who it lends to. An automated computer system assesses the creditworthiness of applicants, and less than 20 per cent are approved. Default rates for loans are below 10 per cent, less than the average rates for credit cards.

The fact that Wonga has been able to become profitable on original financing of just $3m, makes it one of the most capital efficient start-ups in the technology sector, and explains why it has been able to raise a relatively large amount of financing in spite of the general caution among private equity investors.The new capital injection will allow Wonga to increase the number of people it lends to. "We have had more demand than we could service and that won't be the case any more," said Mr Damelin.

The extra cash will also give Wonga the credibility to form partnerships with other companies. It could, for example, go into partnership with a boiler-repair company, offering emergency finance to customers who are facing unexpected boiler repairs.No partnerships have yet been announced, but Mr Damelin said the company was in talks over such deals."Up to now we have reached customers in a limited way," he said. "But now we'd like to put ourselves in a context. To do that we need volume, and a strong balance sheet."