Big cuts are coming to Prosper Marketplace. According to Wall Street Journal reports, the online lender is shedding 28 percent of its staff and rearranging its executive team.
The moves comes as the firm is working to account for declining loan volumes.
The biggest individual cut will be a Utah office dedicated to lending for medical procedures, but 14 percent of Prosper's San Francisco- and Phoenix-based workforce is also on its way out the door. All in, 171 jobs will be cut.
CEO Aaron Vermut will be forgoing his salary this year. He wrote in an email regarding the coming changes: "With the recent tightening of the capital markets, we are refocusing on our core consumer loans business.”
The big cuts follow a period of explosive growth for the firm. In 2015, Prosper's staff grew to 619 employees. Prosper also spent $40 million to acquire medical loan provider American Healthcare Lending LLC and personal finance startup Billguard Inc.
That growth, however, was fueled by investors hungry for Prosper's loans. Changing market conditions (and some higher-than-expected default rates) have changed the math and softened investor interest some.
And though Prosper was valued at $1.9 billion in it last fundraising round last year, as of yet, the firm has not actually been profitable. Loan originations more than doubled between 2006 and 2015 from $2.4 billion to $6.1 billion, but losses grew too — and much more quickly — from $3 million in 2014 to $26 million last year.
Prosper’s loan volume actually fell in Q1, to $973 million — a 12 percent decline from $1.1 billion in the last quarter of 2015. Loan volume had been expected to double this year, but that target has since been taken off the table by Prosper.
The staff cuts will also include some management players. Chief Risk Officer Josh Tonderys and Prosper’s top business development executive, Itzik Cohen, are both departing. Tonderys is being replaced by Brad Pennington.
Going forward, the next steps involve a more intensive focus on marketing and human resources. Prosper has also announced it is hiring a capital markets team to help manage the firm's shift from selling to hedge funds to focus on banks and small investors.
Justin Wee, formerly of Goldman Sachs, will be vice president of retail distribution, and a new platform aimed at retail investors and retail funds will be rolled out next month.
Prosper's problems of late highlight a general difficulty marketplace lenders have: how to deal with volatility in the loan market, particularly when it comes to consumer or investor demand. Banks — the traditional home of lending — have a leg-up in this regard; when loans get slow, banks can lean on other income streams (fees, interest, etc.) that online lenders don't have by design. That saves a lot of overhead, of course, but also makes for challenging times during a dry spell, particularly for a firm that wasn't turning a profit when it was on a hot streak.
“If you’re in a capital-intensive business and you’re in the part of a cycle where capital is flowing, it’s easy for people to extrapolate” continued expansion, said Ravi Viswanathan, a general partner at venture capital firm New Enterprise Associates, about the online lending sector. “It’s hard to say the good times are coming to an end ... [and] a lot of folks didn’t put that calculus in when they were funding these companies.”