OakNorth bank chief Rishi Khosla ponders London listing

Vision: OakNorth’s Rishi Khosla says his mission is to help entrepreneurs

He may not be as famous as his namesake at Number 11 Downing Street, but Rishi Khosla has some impressive accomplishments to his credit. Since 2015, the 46-year-old chief executive of OakNorth Bank has built up a £3.8billion lender, using nifty technology to offer loans to small businesses.

Small businesses, he says, have been “ignored” by traditional banks since the financial crisis. Stepping into the breach, he created one of the UK’s leading fintech companies and is now eyeing a float on the stock exchange, with London the most likely location.

“We are very driven in our mission to help entrepreneurs and small businesses,” says Khosla, who co-founded the bank. “We’ve helped create 30,000 new jobs in the UK,” he enthuses, referring to the jobs generated by businesses his bank has backed.

OakNorth is a name with a familiar ring for followers of political wrangling. The bank was at the center of a storm in Westminster after it emerged that former Chancellor Lord Philip Hammond, who took on an advisory role at OakNorth in 2020 after leaving frontline politics, had contacted the government in his name.

Lobbying is a hot topic after the scandal over former Prime Minister David Cameron’s efforts on behalf of bankrupt financial firm Greensill. In this instance, Hammond had mentioned OakNorth’s lending services to businesses affected by the pandemic to a senior Treasury official. Khosla points out that these services were offered on a not-for-profit basis.

Hammond was reprimanded for his behavior despite being cleared of breaking lobbying rules. “Our perspective was that we were trying to do something good,” Khosla says. “It’s a shame there was a journey in the process.”

On a happier note, OakNorth is one of the few start-ups to turn a profit quickly. It reported a 73% rise in pre-tax profits last year to £134.5m.

The bank uses state-of-the-art technology to assess the risks involved in lending amounts between £250,000 and tens of millions of pounds to businesses. So far it has given away £7.5billion to businesses including restaurant chain Leon.

It uses advanced algorithms to help predict how potential borrowers will fare against rivals and in different economic climates.

The lender – set up by Khosla and his business partner Joel Perlman, in 2015 – was part of the wave of digital banks that emerged after the financial crisis to fill the gaps left by big banks as they turned away from activities perceived as risky.

“We wanted to build a bank using cutting-edge technology that would allow us to serve businesses that were simply ignored by commercial banks, which I call the missing middle,” says Khosla.

The company raised $440m (£340m) from investors including Japanese investment giant SoftBank in 2019, making it Europe’s most-valued tech company at the time. .

So, what’s it like working with one of the world’s biggest tech investors and its billionaire founder, Masayoshi Son? “Masa is a pretty unique character,” says Khosla. “He looks for companies that can be very big, disruptive, have an edge. And clearly, he’s not afraid to take risks.

OakNorth is now making waves in the US, licensing its lending software to other finance companies, including credit card giant Capital One. The technology is helping banks monitor their loan portfolios to watch for potential defaults, which has been especially helpful during the pandemic.

“Our ambition is to help solve the operation of commercial banking, in order to [they] can better serve entrepreneurs,” says Khosla. “We have $420 billion of commercial lending data in the United States through our systems that monitor lending.”

OakNorth prides itself on the fact that very few of its loans go sour. But once the pandemic took hold, she set aside £21.6million to cover possible bad debts. The situation improved last year, however, and OakNorth was able to recoup £3.7million of the money set aside.

Does Khosla expect more defaults given the state of the economy? “If you are in the lending business, of course you can expect defaults. It would be abnormal not to have payment defaults on a regular basis, because it is our job,” he says. “The fact that we have gone six and a half years with just over a dozen faults is, I think, exceptional. Do we think we will continue to have small defects? Absolutely. But will we have defects and losses? Absolutely.’

Khosla, a conservative donor and avid art collector, is a tech entrepreneur to the core and dresses the role. He can be spotted in the bank’s trendy Soho offices wearing a hoodie and walking on his treadmill desk with a workstation attached. But he also knows when to don a bespoke suit, especially on nights out with fellow Tory donors and politicians.

He grew up in West London and attended the prestigious Merchant Taylors school. “My dad worked incredibly hard, so while he was doing his main job, he was setting up a business in the evenings and on the weekends. He regularly went to bed at 2 a.m. and took a 7 a.m. train to London from his office.

An initial public offering of the company’s shares to investors may be considered “in the future”, Khosla said. Will OakNorth be listed in London? “To be decided,” he laughs. ‘Most likely. When you look at what London has today in terms of tech growth companies, there are, but it’s still quite limited.

A float would be welcomed by the City after the quiet postponement of a series of potential registrations. The UK is already lagging behind the US and China, accounting for just 5% of global enrollments from 2015 to 2020.

The other Rishi – Sunak – was keen to encourage UK tech companies to emulate the giants of Silicon Valley.

To that end, Khosla welcomes a government-ordered plan to overhaul the stock exchange by allowing entrepreneurs, potentially including himself, to retain greater control of their business.

He says such a plan could entice more companies to register in London. “The approach adopted by the government is super positive,” he enthuses. “By doing this you attract good companies to stay listed in the UK.”

Then, he says, they are more likely to focus on this country when creating jobs and growth.

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