Prosper Marketplace, 2nd-largest online lender, raises $165 million

Prosper Marketplace, the second-largest online lending company, has raised $165 million from investors, setting up the fast-growing company for an IPO potentially in the next year.

The cash infusion nudges the San Francisco-based company’s valuation to about $1.87 billion, almost triple what it was worth when Prosper last raised funds. The firm raised $70 million from investors in May.

Prosper CEO Aaron Vermut told this newspaper in a previous interview he was considering an IPO and if Lending Club’s public debut “went really well it would be hard to say it wouldn’t have an impact” on his decision.

Lending Club made its public debut in December as the largest IPO from California in 2014, raising $865.5 million. It was the first IPO from an online lending startup, and the company’s shares shot up 56 percent on its first day of trading. They have since dropped to $18.40 per share, 22.7 percent above the IPO share price of $15.

Prosper’s growth has accelerated since the company basically rebuilt itself after a rough few years struggling to stay in business. It overhauled its management in 2013, bringing in Vermut as chief executive, and several members of the board departed. Now, the company seems on track to reach the same growth of its bigger competitor and the darling of the online lending space — Lending Club.

Companies such as Prosper and Lending Club aim to give consumers looking for a loan an alternative to the often paper-heavy and slow-moving banking system, in which antiquated credit rating systems may exclude people like college graduates or first-time entrepreneurs without any credit. Rather than making loans directly to a borrower, as a bank does, Prosper functions as a marketplace, connecting borrowers whose creditworthiness it evaluates with investors who decide whether a particular borrower is worth their risk. The investor, who might be a financial institution or simply an individual, then has a connection with the borrower, lending the money and receiving payments through Prosper.

Prosper helped issue a record $595 million in loans in the first quarter this year after facilitating $1.6 billion in 2014. Interest rates range from 6.68 percent to more than 35 percent, depending on the borrower’s risk.

Prosper first opened to the public in 2006 and relaunched in 2009 after a brief shutdown to reach an agreement with the U.S. Securities and Exchange Commission. Lending Club did the same. That agreement includes requiring both companies to make their financials public, even though they were private companies.

Prosper’s revenue for 2014 was $81.3 million, about 4.5-times more than revenue in 2013. The company doesn’t make a profit, but its losses dropped from $27 million in 2013 to $2.7 million last year.

 

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