A panel of Europe’s top investors has publicly declined to comment on what went wrong at payday loans company Wonga, in the wake of a £220 million write down earlier this month.
The investors were taking part in a discussion about the European investment ecosystem at TechCrunch Disrupt Europe here in London. Two panel members were from VC firms that directly invested in Wonga: Accel Partners and Balderton Capital.
It’s the second time these firms have stayed silent when asked questions about Wonga — but the first time their ‘no comments’ have been elicited on stage.
The context here is that earlier this month Wonga agreed to write off the loans of 330,000 customers and waive the interest and fees for a further 45,000. It did so after admitting its automated checks, the core algorithmic IP that allowed the business to hook a series of high profile technology investors in the first place, had failed to adequately assess affordability. In plain English it was lending money to people who did not have the income to pay back the loans.
Wonga’s business has also drawn censure from sector regulator the Financial Conduct Authority (FCA) for sending fake lawyers’ letters to customers in arrears. It was required to pay out a further £2.6 million in compensation for that.
During the panel discussion with TechCrunch’s Ryan Lawler, Philippe Botteri of Accel Partners declined to comment on what went wrong at Wonga.
Daniel Waterhouse of Balderton Capital also did not directly address Lawler’s questions — including whether it was a bad idea to invest in the company or whether the execution of the idea was flawed. Instead Waterhouse made a general statement about what Wonga is doing now the FCA has stepped in.
“Look I think Wonga have been quite clear they’ve made lots of mistakes about where the business is at,” said Waterhouse. “They have a big loan book, they’ve said they’re working closely with the FCA to offer a great product to market. They’ve been pretty clear about what’s happened in the past and what they’re doing now and moving forward.”
Index Ventures’ Saul Klein was also on the panel, and while Index itself is not an investor in Wonga, Index partner Robin Klein — Saul’s father — was chairman of the QuickBridge (Wonga) board until November 2013, when he stepped down from the role.
“Index did not invest,” said Klein, going on to give a roll call of who exactly did invest in the payday loans business. “Accel did, Balderton did, Dawn Capital did, Oak did, Meritech did but Index did not… Let’s just be clear on who actually invested in what.”
Klein did not mention that Robin Klein was chairman of the Wonga board.
Asked if he had any insight into what went wrong, Klein said: “I don’t know. I’m not on board, I’m not an investor, I’m not the guys who are.”
“I’m not sure what you mean by what went wrong with it,” he added.
Passion Capital’s Eileen Burbidge was also on the panel — and later tweeted about the response Lawler’s question elicited.
“I’m sure [the investors] didn’t go in, nor did the company founders go in, saying we’re going to try and take advantage of the situation here and try to extract as much money as possible at the risk of society or whatever,” she said during the discussion.
“I’m sure that it was all very well intended to bring efficiencies to what is not a very perfect system to begin with. And it probably bumped ahead of education and regulation, which I think they’re doing the best efforts to try and correct. That’s my observation.”
Passion and Burbidge have no direct investment or board links to Wonga.
Topics the panel were more comfortable talking about included the size and trajectory of the European ecosystem; differences with Silicon Valley; promising technologies in the region; whether Europe’s investment community is incestuous, given the high rate of co-investing by the same firms; and the types of investments they are each interested in.
Burbidge identified infosecurity as an area of special interest for her — especially where it’s being combined with AI and natural language processing.
Waterhouse pointed to design as a key area for Europe. “What’s interesting in Europe is here we have a fusion of talent and of design skill sets — particularly in Scandinavia and also in London. Which fuse together to build some pretty interesting products,” he noted in comments about the startups that are catching his eye.
Botteri said Accel is continuing to look at what he described as “fundamental trends” like cloud computing, big data, cloud infrastructure. “We still see a tonne of opportunity [in] ecommerce enablement,” he said.
The second area of interest for Botteri are startups in the orbit of emerging computing platforms — which he said will mature five to 10 years from now. “We’re seeing the emergence of new computing platforms,” he noted, pointing to the forthcoming Apple Watch as an example. “That’s going to be a new computing device that you have on your wrist but I think the computing devices are evolving, right. They can be on your wrist, it can be in your pocket, now you have drones it can be in the air, you have robotics.
“So all these computing platforms which are hardware driven… I think that’s going to drive a lot of innovation. We’re just seeing the emergence of this.”
Index’s Klein pointed to AI as an interesting investment area for Index. “We saw Google acquire Deep Mind in the last year, and we’ve got a very interesting investment in a [smart keyboard] company called SwiftKey… It’s the emergence of, if you like AI and deep tech coming out of Europe as a fundamental differentiator,” he said.
“When you look at how much of a difference AI and natural language is going to make to the way we experience and navigate information, I’m very, very excited by some of this deep tech talent that exists in Europe,” Klein added. “That’s very, very interesting, when we start to see businesses like that… really using data and intelligence to help us figure out information in new ways. That to me has really been the sweet spot for value in the past.”
Earlier in the panel Klein also made a point about early stage investing, discussing the need for investors to be very hands on with the startups they are putting money into.
“An investor needs to get their hands dirty, whether they’ve been an operator or whether they haven’t been an operator it’s really about what we would call Series A muscle,” he said. “It’s about really getting your hands dirty, getting involved with the team, being accessible, being a resource, having a network — that allows them to hopefully make their mistakes because there are a lot of mistakes we’ve all made in our careers and hopefully we can pass on the benefits.”