The recent history of Lending Club is well-known to, frankly, probably just about everyone at this point. Founder Renaud Laplanche pulled off the commerce curveball of the week with twin announcements:
- His tenure as Lending Club’s CEO is officially over.
- An official audit turned up some rather disturbing details about how loans were packaged to buyers and how information was dispersed around investment decisions.
Until about 9 a.m. on Monday (May 9) morning, Lending Club was still the largest and, arguably, the most successful marketplace lender in the field. As May’s second full week is wrapping up, many are wondering if Lending Club will be the detonation that sets all of the alt-lending dominos falling.
“I’m not surprised that these entities are having trouble; I am surprised at the speed of the unraveling, and that speed is what should have people very concerned,” noted Continental Advisors Partner Paul Purcell. "It can make one really worry that credit could be the next shoe to drop.”
And it surely has been a high-speed come-apart.
Lending Club’s stock price took a beating in after-hours trading on Monday as the news broke and fell to roughly $4 — a downward trend that continued through the week. As of the writing of this, the stock was below $4 and still falling. It didn’t help that the SEC is investigating the myriad violations that Lending Club’s internal review turned up.
And the ripples were visible and quick.
Wells Fargo decided to strike while the iron is hot and jumped in with an announcement of an old — but new — SMB lending product. Old, because it was released as part of a pilot in Aug. 2015. New, because it is now a full-blown offer available to any SMB that qualifies. The FastFlex small business loan allows small business borrowers who have been Wells Fargo customers for a year to apply for and receive a loan online in as little as one business day. Value prop is pretty clear: all the speed of an online lender, all the compliance expertise of a real bank. Who said banks can’t move fast?
And the online marketplace bleeding didn’t limit itself to Lending Club’s share price. OnDeck has also seen its share price in retreat. OnDeck’s stock price had been climbing slowly but consistently for the last 30 days; on Monday, it was at about $8.30. As of close of market yesterday (May 12), it had dropped to $4.38. The wonder is that it’s trading at Lending Club levels, and its business model is different. It's just part of the club that no one wants to be part of now — the online/alt-lending club.
Now, anyone with an interest in financial services and a working Internet connection has a pretty good idea of how Lending Club went from going 100 miles per hour in the fast lane to hitting a brick wall and stopping.
But more interestingly and less remarked-upon is how and why Lending Club found itself going 100 mph when it hit that wall. Because, unlike a Ferrari, it didn’t hop up to top speed immediately. In fact, the journey from Facebook app, to $9 billion dollar IPO, to the crackup that started the marketplace lending meltdown was one of almost 10 years.
And we have the highlights — in the words of Renaud Laplanche and others.
Lending Club founded.
Lending Club launches as one of the first Facebook applications.
“When I founded my first startup, it got me thinking — banks are middlemen.” - Renaud Laplanche on how he came up with the idea of Lending Club, learning from friends and family they would have bankrolled his first startup for less draconian terms than he was getting from his credit card.
Lending Club raises $10.26 million in a Series A funding round in August from Norwest Venture Partners and Canaan Partners.
Lending Club first developed into a full-scale, peer-to-peer lending company.
“I needed to fill a void, because banks weren’t going to get us out of this mess.” - David Niekerk, an Amazon vice president and early lender of Lending Club, as to why he started using the service.
Lending Club temporarily suspended new lender registrations, canceled its affiliate program and entered a "quiet period," while it awaited approval to issue promissory notes to lenders.
“Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios and withdraw available funds without changes.” - Lending Club’s official explanation of the quiet period.
Lending Club officially files with the SEC for the registration of $600 million in "Member Payment Dependent Notes" to be issued on its website.
Lending Club completes the SEC registration process.
Notes issued on or after Oct. 14, 2008, represent Lending Club securities rather than direct obligations of the ultimate borrower and are tradable (can be bought and sold) on the FOLIOfn trading platform, according to the prospectus released.
Lending Club brings in $12 million Series B funding led by Morgenthaler Ventures and joined by existing investors Norwest Venture Partners and Canaan Partners.
“The current state of the economy makes it clear the credit market needs to change.” - Renaud Laplanche noted of the “$12 million vote of confidence” his firm received after its issues with the SEC.
Lending Club grabs $24.5 million Series C financing round led by Foundation Capital and joined by existing investors, including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.
"Lending Club is ideally positioned to capture a significant share of the U.S. banking and investment market over the next five to 10 years. The Lending Club team has built a stellar track record in a challenging environment and now has the data to show that the economic model works and delivers tremendous value to both borrowers and investors." - Charles Moldow, general partner at Foundation Capital.
As of 2010, Lending Club controls over 80 percent of the U.S. P2P lending market. Valuation is around $80 million.
Lending Club raises another $25 million in Series D in a round led by Union Square Ventures. At this point, LC’s valuation is $275 million — just one year later.
“We were not looking to raise money but wanted to work with Union Square Ventures since the venture firm has expertise in the 'network effect' of online companies.” - Renaud Laplanche on why the firm pursued the round.
“Lending Club is an attractive investment because of its large network of engaged users and because the firm vets its borrowers to figure out whether they are a credit risk. The results are fantastic.” - Fred Wilson, partner at Union Square Ventures.
Lending Club’s headquarters move to San Francisco.
Lending Club secures $17.5 million in new funding — $15 million from Kleiner Perkins Caufield & Byers and $2.5 million in personal investment from John Mack, former CEO of Morgan Stanley.
In Nov. 2012, Lending Club surpassed $1 billion in loans issued since inception and announced it was now cash flow-positive.
“It's not like if you can't get any loan from a bank, you can get it from Lending Club. The individual lenders are also savvy investors.” - Renaud Laplanche on why Lending Club is such a powerful draw for investors, as well as potential borrowers.
Google purchased an equity stake in Lending Club for $125 million from its investors.
“We’d be hard-pressed to find another company that has a better alignment with how we are using technology to innovate. Now that they are on board, we can start exploring some ideas.” - Renaud Laplanche on the Google buy-in.
Lending Club surpasses $2 billion in loan volume.
“What is even more exciting is the potential of where we are headed. I feel that our competitive advantage compared to traditional banks is really long-lasting because, again, it is grounded in technology and cost, not something they can react to.” - Renaud Laplanche on the bright future of Lending Club and other digital lenders.
Lending Club files for an IPO with the SEC scheduled for Dec. 2014.
Lending Club completes its $900 million IPO — the largest in tech for 2014. Stocks popped 56 percent in the first day of trading, leaving the company’s post-IPO valuation at $8.6 billion.
"We know that we are going to be measured over the long term, and our success will play out over the years, but it was certainly a great way to start the day." - Scott Sanborn, Lending Club’s CTO.
Lending Club’s value grew to $10 billion within five days of its IPO.
Lending Club announces expansion into auto and mortgage loans. Renaud Laplanche is notably friendlier in his outlook toward banks.
“We are transforming the banking industry with the banks. We really believe that the banks can be part of the transformation. So, we have a strategy to partner with banks. We’ve announced a number of partnerships with community banks across the country that are interested in innovation but don’t necessarily have the resources to take on large technology-enabled processes. So, the ability for community banks to click into our platform and have access to a national origination platform is really attractive to them. We’ve also entered partnerships with larger banks, like Union Bank of California, that we announced last year, whereby the bank can make loans to their customers through the Lending Club platform and really take advantage of our low cost of operations to make loans more profitably than they would directly.” - Renaud Laplanche on how his firm will expand to take on more lending.
Lending Club announces a partnership with the Clinton Global Initiative and the Opportunity Fund to provide access to roughly $10 million in capital to small businesses in California.
"Access to capital for entrepreneurs is key to restoring real economic mobility, job creation and the economic health of the middle class. Opportunity Fund and Lending Club are committed to pilot an unprecedented partnership." - Former President Clinton on the pair-up as an effort to increase financial mobility.
Lending Club rolls out a new SME lending product with Sam’s Club.
“It’s a lending option to give small businesses a predictable, flexible, low-cost way to access credit ‘on demand’ if and when they need it.” - Renaud Laplanche.
Lending Club teams up with rival firms Prosper and Funding Circle to form the Marketplace Lending Association (MLA).
“As an industry, there’s not one specific issue we’re particularly worried about. The space is already heavily regulated, with borrower protections on one side and securities rules on the other. But it is really important to be in active dialogue with regulators to provide a forum for thoughtful discussion as the industry develops. Specific regulation [for the marketplace lenders] could be a healthy thing.” - Sam Hodges, cofounder of MLA and U.S. managing director of Funding Circle.
An internal investigation turns up evidence that Lending Club management knowingly sold a subprime loan parcel to a client, Cirrix, that had requested specifically not to buy such loans and falsified documents to make that loan happen. The investigation also turned up evidence that Laplanche failed to inform the risk committee of a personal financial stake he and board member John Mack had in Cirrix before Lending Club invested heavily into it.