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Prosper Gets a $150 Million Investment Commitment

by Peter Renton on June 22, 2011

Last week Jim Bruene wrote on his NetBanker blog about Prosper’s big new investor. This institutional investor has publicly committed to investing $150 million into Prosper notes over the coming years. This is great news for Prosper and it is likely a result of their new focus on institutional investors in recent months.

Those of us who watch Prosper closely have known about this investor since they suddenly appeared on the scene in early May. One of the great things about Prosper from an investor’s perspective is that you can see what other investors are doing. And with a third party tool like Lendstats you can get a great deal of information.

Introducing Worth-Blanket2

This new investor goes by the Prosper screen name of worth-blanket2. Of course we know nothing much about them other than they are located in California. Here is a link on Lendstats that shows the details of all of their investments to date. In May alone, their first month, worth-blanket2 invested over $1 million into Prosper loans. As of this writing their total investment was up to well over $1.5 million.

What is interesting when you look at the breakdown in the roughly 400 loans invested in thus far is that worth-blanket2 is not being conservative. It is focusing on the high yield loans with an average interest rate of over 26%. I hope and expect that this investor has done their homework and have studied the historical performance of these loans. It is obviously way too early to tell what their ROI will be but I will be keeping a close eye on this.

Not The Biggest Prosper Investor….Yet

Prosper has a couple of other big investors with large sums of money invested. Both Reflective-Rupee and Aberdeen have over $2 million invested and have consistently added to their investment every month. But within a month or two they will likely be eclipsed by worth-blanket2.

I expect that we will see one or two new investors like worth-blanket2 come on to the Prosper platform here in coming months. For the last two years Prosper has given investors great returns and that information is starting to filter through to the large institutional investors.

The Largest Commitment Ever?

This $150 million may be the largest investment commitment ever in the peer to peer lending industry. Lending Club does not disclose any details of their investors so there is no way to know for sure.

Based on their current pace of around $1 million a month the $150 million will take quite some time to invest. Although I imagine as Prosper increases their new loan volume that worth-blanket2 will increase their monthly investment well beyond the $1 million.

A commitment this large is a great vote of confidence in Prosper and in peer to peer lending in general. I will be watching worth-blanket2 closely and be reporting back here from time to time on their progress.

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CA-Lender June 23, 2011 at 10:49 am

Peter,

What effective do you think will have on the creditworthiness of the loans being issued moving forward. In other words, do you think Prosper will lower their borrower guidelines to accommodate worth-blanket2 thereby funding loans of a lower quality?

CA-Lender

Brian B June 23, 2011 at 2:26 pm

This institutional investor chose to invest in notes with his $150 million, not invest venture capital in the company itself (obv Prosper isn’t looking for 150mil in vc, but they take a few mil pretty regularly). Could just be that this particular hedge fund or whatever has limits on how it can invest its money or something, but it raises an interesting choice for those large investors – that of investing in the company (Prosper itself via venture capital) or investing in the company’s product (notes). Obviously there is some correlation between the two (if notes fail, company will probably fail)

Both LC and Prosper are still raising outside venture capital periodically. We don’t know exactly what sort of returns, equity, etc they are offering in return to these venture capitalists, so its hard to say which I would do if given the option.

Raises an interesting question – when its a company’s business to give its customers 10% returns on their investment, would you rather be a customer or an owner?

Peter Renton June 23, 2011 at 4:03 pm

@CA-Lender, I really don’t think Prosper is going to lower their borrower guidelines at all to accommodate anyone. In my conversations with Prosper management they are acutely aware of the importance of risk management. They know what happens if you let this slide so I would expect that their borrower guidelines will remain as strict as they have been since reopening in 2009.

@Brian, You bring up an interesting point. I don’t work at an institutional investor so I can’t give a definitive answer. But to me they seem like very different investments. Venture capital companies are highly focused on investing in companies and they want to see the potential for a 10 to 100 times return on their money. You can’t get that kind of return with a p2p lending investment.

So, I think raising VC money and attracting institutional investors are two very different things. Both types of investors have lots of cash, but have very ways of generating returns for their clients.

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