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Prosper Receives a New Round of Funding

by Peter Renton on November 4, 2011

I have been out in San Francisco this week visiting with the management teams at Prosper and Lending Club. I arrived at the Prosper offices yesterday morning and was greeted by some big news. CEO Chris Larsen shared that they have just received a new round of venture capital funding.

Here are the details of this funding round. Prosper issued 8,996,739 shares of its Series F Preferred Stock to a group of new investors that includes IDG Capital Partners for an aggregate purchase price of $9.0 million. Prosper will not be issuing a press release about this funding and they have given me permission to make this announcement.

This funding was unsolicited and came at a higher valuation than the round that closed in June. It brings the total cash on their balance sheet to over $25 million and gives them even more flexibility now to ramp up operations. The mood at Prosper headquarters was understandably jubilant when Chris Larsen announced the news to employees.

I think this funding is great news not just for Prosper but for all of peer to peer lending. Their CFO stated to me yesterday that Prosper expects to reach break even in 12-18 months at somewhere around $30 million in new loans per month. This new funding should easily see them past that point even allowing for slower growth than expected.

All p2p investors benefit from having two strong and successful competitors. It certainly looks like we have that now. The future keeps looking brighter for peer to peer lending.

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{ 19 comments… read them below or add one }

matt feldman November 4, 2011 at 2:18 pm

why wouldn’t prosper or lending club use it’s own services to raise money? Kinda like Uhaul?

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Peter Renton November 4, 2011 at 2:39 pm

@Matt, There are two main reasons why Prosper and Lending Club do not use their own services to raise money:
1. They are looking to raise many millions of dollars – the limit on Lending Club is $35,000 and on Prosper is $25,000.
2. There are severe restriction placed by the SEC on raising equity from the general public.

U-Haul is not raising equity – you are investing in hard assets when investing in U-Haul. I hope that makes it clear.

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Dan B November 4, 2011 at 3:15 pm

By “unsolicited” I assume you mean that Prosper didn’t have to pay someone a “fee” to round up the financing……………like they’ve done the last several times. Am i right?

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Matthew Paulson November 4, 2011 at 3:20 pm

Basically, IDG went to Prosper and said they wanted to invest. IDG offered a good valuation. Prosper would be dumb to say no to the $.

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Chris November 4, 2011 at 5:01 pm

Peter, thanks for sharing – especially since there was no planned public announcement for this information. Come to think of it, thanks for getting on a plane and meeting with the movers of this industry. It helps the rest of us know what is going on.

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Peter Renton November 4, 2011 at 8:59 pm

@Dan, I think Matthew has it about right. Chris Larsen said this is a firm that has been following Prosper for a while and wanted in.

@Chris, No problem. I learned a ton of stuff on this trip – there are certainly some exciting changes coming down the pipe in the next couple of months.

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312-lender November 5, 2011 at 12:39 am

Peter –

Can you tell us what’s coming down the pipe line?

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Charlie H November 5, 2011 at 5:28 am

~$1 a share is that right?

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Peter Renton November 5, 2011 at 7:51 am

@312-lender, Most of what they are working on is not ready yet so they don’t want to announce it but I will certainly share as soon as I am able to. One thing I know is imminent that I can share is an IRA product which should be coming out next week.

@Charlie, Yes.

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Dan B November 7, 2011 at 3:41 pm

So their CFO expects to go from $8 million to $30 million in 12-18 months huh? Perhaps in Fantasyland. But that’s ok, because in 12-18 months no one is going to remember or care that he stated this…………thereby keeping the door open to more & more ridiculous statements. That’s the beauty of the internet.

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CA-Lender November 7, 2011 at 4:08 pm

@Chris & Peter

$30M per month in 12-18, would require appr. 10% month over month growth!

Prosper has been growing 10% month (based on current 7M-8M/month, with worth-blanket putting in around 15-20% of that volume.)

Do you think it is realistic to hit $30M/mo, even in 18 months? (I would love to see it, but I think those amounts are a bit optimistic, even if WB continues with $1.5M/mo)?

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Glenn G. Millar November 7, 2011 at 6:55 pm

Peter,

Thanks for your continued coverage and interest in the entire peer-to-peer lending industry. You’re quickly becoming the Tom Brokaw of our industry, the steady trusted source that informs, educates and presents all sides.

Glenn G. Millar
Prosper Employee

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Peter Renton November 8, 2011 at 7:08 am

@Dan, Based on current trends I believe it is possible. In 18 months Lending Club went from $8.7 million to $25.0 million – so if Prosper can match that growth rate they will get close. I think 12 months is unlikely for Prosper to reach $30 million but within 18 months I think it can match that volume. You know I am going to come back and quote your comment if that happens. :-)

@CA-Lender, I do think it is possible but I agree they are a long way away now. While WB2 is providing a good chunk of the growth there are many new institutional investors coming on board. And retail investors keep growing as well. I have an open mind as to whether it is realistic but they need to keep showing these steady growth numbers for that to happen.

@Glenn, Thank you, but I don’t think Tom Brokaw and I have a whole lot in common. And some here might argue that I am completely balanced in my views. But I certainly encourage intelligent discourse which is what I think we get here most of the time.

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Dan B November 8, 2011 at 8:36 am

Peter…………Yeah except that you forget that it’s a helluva lot easier to go from $8.7 million to $25 million in 18 months when your average loan is $12k rather than under $7k.

How many more borrowers per month did Lending Club have to attract to achieve your 8.7 to 25 million in 18 months? 1200? 1300? Now do the math for Prosper. It’s enormously different.

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Peter Renton November 8, 2011 at 9:48 am

@Dan, That is a fair point. I chatted with Jim Catlin about this last week and he remains very cautious about increasing this average. Although he said there may be some changes here at some point. Regardless of that (and I will be surprised if there isn’t some increase soon) Prosper has gone from 565 loans in February to 1,203 loans in October which is around a 9% compound monthly growth on number of borrowers.

If they succeed in maintaining a 5% monthly growth rate in borrowers going forward and they maintain their loan average of $7,237 in October then in 18 months their loan volume will be around $29 million. That seems doable to me. Of course, that assumes matching growth in investor dollars.

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Dan B November 8, 2011 at 4:47 pm

Peter…….one of these days you’ve got to show me how you do your calculations. To get to $29 million they will need around 4000 borrowers a month. They’re at 1200 now. A 5% monthly growth compounded for 18 months will not get you from 1200 to 4000. Not even close.

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Peter Renton November 8, 2011 at 5:03 pm

@Dan, I must apologize. I have a compound interest calculator widget on my Google home page that I use for this kind of thing. But when I went to multiply by the average loan amount I must have made a mistake. Anyway, to correct what I said Prosper actually needs a 7% compound monthly growth rate (assuming no increase in average loan amount) to get to $29.4 million in new loans within 18 months. This is still a slower growth rate than the last nine months (admittedly it is coming off a lower base).

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Dan B November 9, 2011 at 4:50 am

Think nothing of it Peter. I still think the projections are way too optimistic but we’ll see. On a more optimistic note, Prosper does seem to be having a very solid November so far. Looks like they will set a new all time volume record before the end of the year.

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Peter Renton November 9, 2011 at 5:58 am

@Dan, You may well be right. It is certainly an optimistic view that Prosper will be at $29 million in 18 months – but as you well know I tend to lean that way. And yes, this is the best start to the month that Prosper had had since relaunch. Not sure the impact of the Thanksgiving and Christmas holidays but I think it is likely they will hit $10 million in the next couple of months.

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