F. Scott Fitzgerald is often quoted as the source behind the phrase, “there are no second acts in American life.” But as we all know and have witnessed, American lives are full of second, third and, in some cases, even fourth acts.
Just ask any entrepreneur.
Which leads to the interesting case of Renaud Laplanche, the co-founder and former CEO of Lending Club and the co-founder and current CEO of online lender Upgrade. Laplanche — as one of the pioneers of marketplace lending — was no stranger to making headlines before last spring, as he was one of non-bank-based financial services’ most enthusiastic and optimistic boosters.
But the headlines took on a very different tone and intensity during Laplanche’s very public exit from Lending Club — with a scandal involving underwriting and shaky loan sale practices when the firm — and its executives — were found to have sold $22 million in subprime loans against the specific instructions of their investor. Both Lending Club and Laplanche are currently facing shareholder litigation that claims they concealed material weaknesses in the online lender’s ability to monitor its operations.
“I recognize that events occurred on my watch where we failed to meet our high standards. While there are disagreements as to the characterization of facts, I accept that the board acted in good faith and did what it believed was right for the company,” Laplanche said in a statement shortly after news broke of his exit from the firm.
But in what is shaping up to be Renaud Laplanche’s second act in online lending and FinTech world, it seems as though the executive may be ready to take the wraps off his newly founded online lending startup, Upgrade. It’s reported that Upgrade’s loan volumes are growing and that it intends to add new asset managers to its roster over the next half year.
Word of Upgrade’s launch first hit the wires in late 2016 with few details — so few that even the media got the name wrong. The news at the time was that the firm’s financial backing came via Laplanche himself and a few unnamed investors, work had started in August and Credify was the name of the company.
Nine months later, the news is that Credify has become Upgrade, and it’s raised $60 million in Series A funding ($48M in equity and $12M in convertible notes) from a laundry list of investors, including Apoletto Asia, CreditEase, FirstMark Capital, Noah Holdings, Ribbit Capital, Sands Capital Ventures, Silicon Valley Bank, Union Square Ventures, Uprising Ventures and Vy Capital.
Upgrade, while also an online lender and thus a competitor for LendingClub of sorts, is differently structured. The firm focuses entirely on a small class of institutional investors to fund loans, leverages a blockchain protocol to create “time-stamped, immutable transaction records” and seeks to combine its lending products with credit monitoring and education tools.
And it seems Upgrade is getting ready to offer its brand of upgrade to the market in the increasingly near future. According to reports, the firm has hired roughly 100 people, split between its headquarters in San Francisco, its engineering centers in Montreal and its Phoenix-based credit operations center that handles customer service, collections and loan servicing.
According to an interview that Reuters had with Laplanche, the firm’s testing of credit quality and risk management systems, compliance, operations and infrastructure preparations is coming to a conclusion, which means “ramping up” the service is already underway and scheduled for greater intensity very soon.
So far, the firm has signed up six asset managers who have already committed to buying loans originated by the company, including Jefferies LLC and an unnamed Hong Kong firm.
“We’re getting towards the end of that test plan, and we’ll soon be able to focus on growing the business and driving loan volume,” Laplanche told Reuters, “We’re moving out of testing and increasing volume already. We’re ramping up volume over time as we learn more and get more comfortable with risk management, operating efficiency and marketing efficiency.”
Upgrade will also — unlike Laplanche’s previous efforts — have some skin in the game from the get-go when it comes to loans, meaning it will keep some of the loan liability on its own balance sheet (about 5 percent) and sell some of it to institutional buyers.
“Something we heard loud and clear was investors telling us they would be more comfortable knowing that we share the risk,” Laplanche said. “There’s alignment of interests between us and investors, so they know if the loans don’t perform it’s going to have a financial impact on us as well.”
Chinese investors have been enthusiastic about the platform — particularly in the face of a weakened yuan that has sent them searching for richer margins overseas. But Upgrade is hoping to see a bigger boost with Western investors, particularly U.S.-based ones.
“European investors have already started investing at scale into U.S. consumer loans, and we’ve seen some Asia-based investors do the same thing,” Laplanche said. “We will see more of that happening. The idea is you can sometimes get higher risk-adjusted returns with U.S. consumers, and it’s also a dollar-denominated investment, which some investors in Asia are really excited about.”
So will the world see Upgrade as a, well, upgrade to the online lending modes out there — with its blockchain buttresses, focus on transparency and desire to roll financial education and consumer credit into a single product? Obviously, it’s too soon to tell.
But Upgrade faces a more difficult environment in the marketplace lending landscape — made partially so by LendingClub’s actions — and many institutional investors have kept their distance ever since.
But Laplanche is bullish on Upgrade’s prospects. “We intend to bring a new wave of innovation and increased transparency to both sides of the marketplace, consumers and investors.”