IOU Financial Funded $100 Million in 2014, Under Attack By Russian Nuclear Scientists

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Kennesaw, GA-based IOU Financial funded $100 million to small businesses in 2014, according to documents filed by its publicly traded parent in Canada. It was a 100% increase year-over-year and brought their lifetime total through the end of last year to $163.3 million. The industry leaderboard has been updated to reflect the figures. IOU also announced that they had funded $33.8 million in the 2nd quarter of this year.

But wait, it gets better…

future underwriterIOU Financial closed at 45 cents a share on Thursday on virtually no volume. That’s apparently cheap because this past June, Qwave Capital, a Russian venture capital firm led by nuclear physicist Serguei Kouzmine publicly announced an all-cash offer to purchase 30,000,000 common shares of IOU for $0.50. That was a 33.3% premium over the price the company traded at on June 12th. If IOU’s shareholders accepted, they’d be giving over control of 55.9% of their company.

IOU did not react well to the attempted hostile takeover. On July 7th, IOU announced that they were suing Kouzmine and Qwave for misusing confidential information under an agreement the two had back in November of 2014.

At the same time, IOU’s board unanimously recommended shareholders reject the offer. “IOU doubts that an investor such as Qwave, which is ‘focused on physics and materials science’, has the expertise or experience needed to ‘grow the company, increase market share and create value for shareholders’,” the company wrote.

Qwave’s Kouzmine has a Master’s Degree in physics from Novosibirsk State University and a Ph.D. in physics from Institute of Nuclear Physics in Russia. Among Qwave’s core missions is to spur growth in “optical sub-micron transistors.” And on their website, they list “a connection with the world wide network of Soviet scientists” as a key advantage.

It’s a wonder they have somehow popped up to try and buy IOU, a Canadian corporation trading for pennies whose entire business is originating short term business loans in the United States at a loss.

But in a release published by IOU regarding a litigation settlement with Qwave, another company is casually mentioned as being one of the defendants in the lawsuit, Finstar Management Overseas. Finstar Management Overseas is owned by Oleg Boyko, a Russian billionaire that is the 1,415th richest person in the world according to Forbes. His net worth is $1.35 billion.

Oleg Boyko
Oleg Boyko, who potentially has ties to the IOU hostile takeover attempt

Finstar’s website states their strategy is “acquisition of majority stakes in rapidly growing companies with proven business models in promising segments and capable founding partners.” Financial services is one of their target sectors.

A Russian billionaire whose business is buying majority stakes in financial companies would seem to make a lot more sense than a group of nuclear scientists.

As part of the settlement, Qwave promised not to buy stock in the company prior to September 23rd. For now, that gives IOU breathing room to scramble for an alternative or fend the attack off. IOU shareholders can learn about the official offer at a special website:

Kouzmine and Boyko are connected through Ritzio Entertainment Group, an international gambling conglomerate that once owned nine casinos in Russia. Bokyo is an owner in Ritzio. Kouzmine was the CEO of it from 2002 to 2006 according to his Crunchbase profile. It also says he led the company from $40 million in revenues to $1.25 billion in revenues in just four years.

According to a Forbes poll, Boyko is one of Russia’s most beloved oligarchs. It labeled him a gambling man and a big time investor.

There is perhaps a reason though why Qwave is suddenly so interested in an alternative business lender. Serguei Beloussov and Ilya Zubarev, two of Kouzmine’s four partners in the firm, are also partners of Runa Capital, a global venture capital firm that has been making investments in the U.S. fintech market. One of their deals was with LendingRobot, an automated investing tool for Lending Club and Prosper users. deBanked published its interview with LendingRobot as part of its March/April magazine issue.

Runa Capital likely intends to be even more active in the space since they are now opening an office in San Francisco.

IOU Financial made waves last year when they announced a partnership with prominent Shark Tank investor Kevin O’Leary. Regarding IOU Financial, then called IOU Central, O’Leary was quoted as saying, “When I discovered IOU Central, I was amazed at not just their reliability and efficiency as a lending company, but also their direct alignment with my own business values.”

The IOU Financial team are regulars at some of the industry’s trade shows and they’ve made a name for themselves with low factor rate deals. Commercial finance brokers and MCA brokers alike on industry forums frequently cite them as a good company that fulfills a specific niche. IOU’s 2014 financial filings stated that 6% of their outstanding portfolio was in auto dealerships, an industry that brokers have continuously struggled to get done at other funders.

Out of all the M&A activity and rumors in the industry however, the IOU story might be the strangest.

In Soviet Russia, Deal Funds You!

Last modified: July 19, 2017
Sean Murray

Category: Business Lending, merchant cash advance

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