Rishi Khosla says he relishes a challenge. That is just as well, as his latest venture, OakNorth, is one of the UK “challenger” banks attempting to pioneer a fresh form of lending in an increasingly competitive market.
Sitting demurely in the courtyard of a Mayfair private members’ club near the bank’s Cavendish Square headquarters, the smartly dressed 39-year-old is relaxed in spite of the huge task ahead in preparing OakNorth for launch.
Mr Khosla says his start-up will plug a huge gap by lending to small businesses, a sector long neglected by high street banks. “What has happened in the UK is banks will lend to businesses as long as they have property as collateral,” says Mr Khosla. But many smaller companies emerging in the digital age lack property portfolios sufficient to obtain a loan: his bank, he says forcefully, will address this “structural void”.
His manner may be demure but he has risen through the ranks at US conglomerate GE Capital, invested on behalf of steel magnate Lakshmi Mittal, and created and sold a business to Moody’s, the credit rating firm. Not just any upstart, Mr Khosla has experience of liaising with high-profile chief executives on business strategy.
At GE Capital, “I pitched the idea of an early stage private equity fund to [the then CEO] Jack Welch. I was given $25m and told to go out and invest”, he says.
His ability to network helped him recruit Adair Turner, former chairman of the UK’s financial watchdog, to serve on the board of OakNorth.
The idea for OakNorth emerged over years, he says, like an oak tree: in fact, the name was chosen because an oak symbolises robustness, while north reflects the intended direction of the company — onwards and upwards.
OakNorth is coined “the bank for entrepreneurs”, Mr Khosla says, with a focus on providing finance to smaller businesses. The strategy ties in with a broader push by the UK government to expand the range of lending sources to small companies.
Spending most of his childhood in London, he says the seed for his career was planted when he was seven. “I would spend holidays at my father’s offices, an engineering contracting firm in London. It was my first taste of business, learning how you achieve strategic objectives and deal with people.”
After studying for a Masters at the London School of Economics as a 20-year-old, he joined the bank ABN Amro. “The majority of the time I spent in a basement in Poland on behalf of a client,” he says. “I enjoyed it, but it was the hardest year of my life. It’s a reality check and it forms you.”
At 23, Mr Khosla was working in GE Capital’s London-based business development group, focusing on mergers and acquisitions. After being introduced by friends to Mr Mittal, Mr Khosla managed a private equity venture portfolio for the Mittals, where his niche was tech investing. “I would spend a week in Silicon Valley, India and London . . . You could see trends start in the Valley, then come to London then move to India.”
By 2002, Mr Khosla felt he had the ability to start his own business. “I knew I wanted to do something in financial services, and with my relation to India,” he says, indicating his Indian heritage.
He and Joel Perlman, an old university friend, set up Copal Partners (later Copal Amba). It provides outsourced research on mergers and acquisitions to investment banks, conducted by graduates in India at a much lower cost. The idea was revolutionary in the industry, where India’s graduates were employed for IT outsourcing, but their skills were not being used in other sectors “in a meaningful way”, Mr Khosla says.
“With Copal, we were creating a new segment. With OakNorth, we are creating a better player in a very well established industry, combining elements of traditional banking with alternative finance providers.” The duo sold Copal to Moody’s last year for an undisclosed sum, and proceeds from the sale were used to start OakNorth.
“It was in the early days of Copal that we started to get frustrated with banking partners,” he says. “At one point we needed £50,000 for cash flow, but there was zero appetite to lend to us among the banks. This was before the credit crunch, in about 2005. So we said there has to be an opportunity here.”
Mr Khosla and Mr Perlman weighed whether to start a speciality funding house, or go a step further and create a bank. “We thought, it’s a challenge, let’s go through the pain!” The notion gained credibility after the UK’s financial regulator released a paper in March 2013 on bringing down barriers for new banks. “When the paper hit, we thought, wow, this is really possible.”
Copal researchers analysed all the banks’ speciality finance arms globally, discovering that many had retrenched from offering credit and would lend only to property-rich businesses. “With no property, it’s harder for businesses to borrow, which is why we have seen the rise of peer-to-peer lenders. If [big] banks were addressing this issue, we wouldn’t have a whole new market arising.”
OakNorth started taking shape in 2014. A three-year business plan was written, Richard Davies, former head of operations at Barclays’ corporate bank, was hired as CEO, and talks with the regulator commenced to obtain a licence.
However, Mr Davies left after only six months in the role. His successor, Chris Dailey, also departed after half a year. Mr Khosla dismisses the rapid turnover, and has assumed the role of CEO.
Mr Dailey says Mr Khosla “lacks a traditional banking background and the in-depth experience of the UK lending market normally associated with bank CEOs”. But he adds that he has “a proven record over the past 10 years of successfully building a multimillion pound business . . . he understands the challenges SMEs face and is passionate about improving access to finance for growing companies”.
OakNorth plans to lend £1bn to small businesses over the next five years, funded by deposits from retail savers and eventually companies. The bank, set for launch within months, has 40 staff in London and Manchester. “The mix of skills we need includes people who understand smaller entrepreneurial businesses, and technology experts,” he says, adding: “We expect to be profitable by the end of the second year.”
Nothing about work keeps him awake at night, he says. For other, aspiring entrepreneurs seeking to plant their own acorns, his mantra is that single-mindedness and determination go a long way.
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