Last week San Francisco welcomed the latest unicorn to the herd – P2P lending site Prosper. Prosper announced that it brought in another $165 million in venture funding and sailed right past the “unicorn-making” $1 billion mark to a total valuation of ~$1.9 billion.
For all you FinTech scorecard toting enthusiasts keeping a running tally at home, Prosper was last valued just about a year ago (May 2014) at roughly $600 million. While more than doubling-up is certainly pretty impressive – and joining the (increasingly ridiculously misnamed) Unicorn Club is a major achievement for any startup, this is not actually Prosper’s most impressive growth spurt. That actually happened between November of 2013 and May 2014 when Prosper sextuppled its value from a little over $100 million to the $600 million mark. In fact, Prosper’s valuation is currently about 50 times higher than it was January 2013 – when it was a member of the FinTech peanut club and valued at a mere $38 million.
Prosper reports that the latest round of funding will help spur growth – and it has certainly found investors willing to help them do it. Even, interestingly, the banks that as recently as a year or two ago would have been more likely to see a P2P lending platform like Prosper as a competitor, are now investors and partners.
Credit Suisse NEXT Investors led the round – with participation from some big name players like JPMorgan Chase, SunTrust, USAA and BBVA Ventures. Other investors included Neuberger Berman, Passport Capital and Breyer Capital.
“It’s a broader, secular change in the way financial services are being devised and delivered and funded,” CEO Aaron Vermut noted in an interview. “There’s a ton of interest in the space.
“In the past, our investor makeup was primarily venture capital and private equity, so branching out into strategic investors is new for us and very exciting.”
Vermut further noted that this current round of investment highlights the firm’s long term strategic vision.
[pullquote]“The explosion of interest in P2P lending demonstrates that a shift is in progress in the way that consumers borrow and lend. This new funding will help us scale the business to meet this growing awareness and demand.” – Aaron Vermut, CEO at Prosper[/pullquote]
“This investment is a testament to the efforts of our entire team in changing how people experience access to credit,” noted Vermut. “The explosion of interest in P2P lending demonstrates that a shift is in progress in the way that consumers borrow and lend. This new funding will help us scale the business to meet this growing awareness and demand.”
Prosper is the second largest P2P lender in the U.S. – its main rival, Lending Club, IPOed in 2014 and captured a higher than expected $870 million in its initial public offering. Today the firm’s overall value is placed at an eye-popping $7 billion.
While Prosper was once the No. 1 player in the space, its road has been less consistently – well – prosperous.
The firm got its start in the P2P lending game in the last days before the financial crisis and was slow to get on board with post-crisis SEC rules that required that their loans be registered as public securities.
Further complicating that situation, in 2011/2012, Prosper began what Vermut referred to as a “slide into subprime” under its previous management team. That was ultimately highly problematic as Prosper’s sweet spot is at a 9.3 percent return on investments across its portfolio. That rate is only attractive to potential investors if loss levels stay at or below around 6.6 percent. Beyond that, returns become severely compressed and investors abandon the platform.
And that they did.
In 2013, Vermut Executive Chairman Stephan Vermut and President Ron Suber captured about $25 million in new funding from a group of backers that included venture-capital firm Sequoia Capital and investment firm BlackRock Inc., to relaunch Prosper.
Two years into its corporate reboot, Prosper has generated $80 million in revenue on $1.6 billion in loans originated in the previous 365 days. Vermut says they believe the company is on pace to more than double its revenue to $180 million.
[pullquote]“We’ve changed the company so much, it’s unrecognizable.”[/pullquote]
“We’ve changed the company so much, it’s unrecognizable,” said Vermut. “This is a real business.”
And it is a real business that traditional lenders are now lining up to get involved with. Lead investor Credit Suisse, for example, allows some of its investors to buy pieces of loans originated on the Prosper marketplace. In fact, Credit Suisse is so into what it views as Prosper’s potential, that in the run-up to their latest funding round, the bank offered to help the startup firm actively recruit suitable investors.
“This is a financial innovation where the consumers and the lenders are benefiting,” Alan Freudenstein, co-head of the NEXT fund, told The New York Times. “It’s a material, innovative step forward in finance.”
And forward is the direction that Prosper seems to be most intensely focused – as the company seems to have strategically decided to focus its efforts into growth, instead of going into the black and reporting a profit. Earlier this year, Prosper acquired American HealthCare for $21 million. The new purchase will allow Prosper to move into loans for elective medical procedures like cosmetic dentistry.
“We believe Prosper is bringing much-needed innovation to financial services, and we applaud their efforts to build a product for consumers built on trust, transparency and excellent customer service,” said Vic Pascucci III, the head of corporate development at USAA, according to The Times.
And that acquisition is just a part of the growth that Prosper has planned – especially now that it is flush with cash from its last funding round. Mr. Vermut told PYMNTS that his company is both hoping to expand the number of consumers they can reach and the types of loans they can offer.
They are not, however, focused on going public, just yet.
[pullquote]”Believe me I would love to ring that bell, but we’re just not quite there yet.”[/pullquote]
“We have plenty of work still to do here,” he noted.” Believe me I would love to ring that bell, but we’re just not quite there yet.”
This year’s focus, he said, will be on raising awareness of the brand and creating a smoother user experience.
And while the firm has ruled out a public listing for 2015, it might be hasty to entirely discount a Prosper IPO in the not-too-distant future. The firm is large enough to set out on its own, and has completed the necessary three-year audit by the accounting firm Deloitte.
The Big Takeaways for Payments and Commerce
It was another big week in financial activity in the FinTech investment area. There was $4.1 billion in investment activity, with the biggest deal being the acquisition of Fundtech by D+H for $1.2 billion. The second biggest deal during the time period was the acquisition of TrustWave Holdings by Singapore Telecommunications Ltd. for $810 million.
In the second week of April, 61 percent of all activity concentrated on the retail payments side. On the commercial payments side, the biggest deals were the acquisition of Fundtech, followed by a $200 million fourth-round investment in Domo.
All in, venture backed and strategic investments on the retail payments side accounted for $2.56 billion in the second week of April, though 13 of 49 deals didn’t see their amounts disclosed. The majority of venture and strategic backed investments on the retail payment side were in Alternative Financial Service and the P2P payments area – collectively they took down 90 percent of all investments.
From a geographic perspective, the U.S. was the most active region followed by Europe ex Russia. The median investment amount was $9.2 million.