Marketplace Lending
Prosper Files 10Q, Revenues and Originations Shrink
November 17, 2016
The slight delay with Prosper’s 10-Q filing is over. The company originated $311.8 million in loans in Q3 versus $445 million in the previous quarter. Revenues were $24 million, down from $28 million in Q2.
The filing delay was said to have been attributed to a recent arbitration decision. That decision and financial impact were disclosed in their report. “On November 17, 2016, Prosper and Colchis [one of their earlier loan buyers] entered into a Settlement and Release Agreement, pursuant to which Colchis has agreed to terminate the Colchis Agreement and waive all rights conferred under such agreement in exchange for a $9 million cash payment by Prosper and equity. Prosper expects to make the $9 million cash payment in the fourth quarter of 2016.”
$9 million is a lot for Prosper who reported only $31.8 million in cash on their balance sheet.
The company has run up a $70 million loss on just $108 million in revenues so far this year, compared to a $17 million loss on $140 million in revenues for the first 9 months of 2015.
Revenues in Q3 year-over-year are down by nearly 60% while originations are down by more than 70%.
Earlier this week, Prosper’s CEO, Aaron Vermut, and executive chairman, Stephan Vermut, both stepped down from their posts.
The Season Finale of Alternative Lending Has Everything You’d Expect
November 17, 2016
This month kicked off what appears to be the first segment of the 2016 two-part season finale of alternative lending. So far, it has everything you’d expect, a main character gets killed off, another simply won’t be returning next season, a wedding, a scandal and even a cliffhanger!
So in that precise order, here’s what you missed:
A main character’s surprising death
Crowdfund Insider reported on Wednesday that Dealstruck, a small business lender, had ceased lending operations. An email sent to Dealstruck has not yet been returned, but Crowdfund Insider’s story includes a quote from Dealstruck’s CEO saying that the company is no longer originating new loans.
The company initially arrived on the scene to much fanfare. A writeup in techcrunch last year said that they had raised $8.3 million in venture financing and secured a $50 million credit facility.
Guess who won’t be back next season
Aaron Vermut is stepping down as Prosper Marketplace’s CEO. He is being replaced by company CFO David Kimball. Vermut’s father, Stephan Vermut is also stepping down as executive chairman.
A wedding between an old character and a new one
Peerform, which was founded in 2011, has been acquired by Versara Lending. Versara, an unfamiliar name, appears to be related to NYC-based Strategic Financial Solutions, a debt relief company headed by Ryan Sasson. Peerform CEO Mikael Rapaport has updated his LinkedIn profile to reflect a new role at both Versara and Strategic.
Scandal! The fake business loan negotiator from upstate New York has been arrested
His name is Sergiy Bezrukov, but the world may know him by another name (or three), John Butler, Thomas Paris or Christopher Riley. After terrorizing the MCA and business lending industry for almost a year, he now sits in prison awaiting trial.
Cliffhanger
Oh, so you thought Prosper would file their 10-Q on Tuesday? You were wrong. The company instead informed the SEC that they would be filing their report late, leaving loan investors wondering if there may be more to the recent executive departures.
Stay tuned!
If this were really a TV show, you’d probably think it jumped the shark when the country elected a President that pledged to dismantle Dodd-Frank while potentially defanging the CFPB. But that is precisely what has happened. “The Dodd-Frank economy does not work for working people,” the President-Elect’s website states. “Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”
If anything, this is all the more reason that you should be tuning in and following the industry in 2017.
The Infant Startup that Swooped an Erstwhile Industry Leader
November 16, 2016It’s not very often that an infant upstart comes by and swoops up an erstwhile industry leader.
While new to the scene, Versara Lending is a New York City-based debt consolidation lender that has already acquired Peerform, one of the early P2P lending marketplaces run by Wall Street credit broker Mikael Rapaport. The company confirmed that it is not an acqui-hire and that Peerform’s entire operation will be merged and be operated by Versara. Rapaport also changed his LinkedIn profile to reflect another new position – SVP of lending markets at Strategic Financial Solutions, a NYC-based financial consultancy firm, which appears to be related to Versara.
Versara only lends in seven states including Arizona, Florida, Georgia, Missouri, North Carolina, New Mexico, and Utah. In contrast, Peerform was founded six years ago, as Lendfolio by Rapaport and other Wall Street execs, Meytal Benichou and Elie Galam. The company raised $5.3 million in funding since inception and its proprietary Loan Analyzer tool matched borrowers with lenders on its platform who funded personal loans up to $25,000.
“We are committed to continue the growth we’ve experienced since we started the company in 2010,” said Rapaport, Founder and CEO of Peerform, in a statement. “In order to realize our potential, it was important for us to build a strong strategic partnership. By joining Versara, we will be able to combine our resources to scale quickly to compete effectively in the consumer lending industry.”
Once a posterboy for P2P lending, Peerform now is emblematic of the churn in the industry. At its launch, Peerform was ready to compete with Lending Club and Prosper head on, backed by institutional investors, thanks to the founders’ investment banking pedigree. The company’s platform started by offering personal loans to borrowers with a FICO score of above 660 for a three-year term. But after failing to gain critical mass, it reinvented its underwriting algorithm with its loan analyzer tool to lend to riskier borrowers (FICO scores <600).
“At this early stage it is difficult to tell whether Peerform will become a strong alternative to Lending Club and Prosper. But their timing is far better now,” Peter Renton wrote in a blogpost on LendAcademy in 2014.
Two years hence, Lending Club has taken several lumps, Prosper’s prospects are in question and in a David and Goliath-esque scenario, once touted to be an industry leader, Peerform hands off its reins to a startup.
The Status of Prosper Marketplace???
November 16, 2016Loan investors will have to wait even longer to find out if the resignation of Prosper’s chief executive on Monday holds special significance. That’s because on Tuesday the company informed the SEC that they would be filing their 3rd quarter results late. They were unable to complete the report in a timely manner, according to the filing, “without unreasonable effort or expense due to a delay experienced by the Registrants in completing its financial statements and other disclosures in the Quarterly Report relating to a recent arbitration decision.”
Jay Antenen, the Senior Editor for DealReporter, said on twitter that the arbitration reference has to do with “the early 2013 loan purchase agreement Prosper signed with Colchis.” According to a brief Antenen published with Eleanor Duncan on Debtwire, “Under that deal, Colchis gained the right to see Prosper’s origination pipeline and bid for loans at no disadvantage to other investors on the platform.” Apparently, there may be some tension between Colchis and new investors.
This all belies the fact that Prosper’s previous quarter produced a gut-wrenching $35.5 million loss on just $28 million in revenue. They had $14 million in expenses just from restructuring related to their downsizing and layoffs which included the closing of their Salt Lake City office and the termination of 167 employees. Their first quarter of the year yielded a $17 million loss on $56.5 million in revenue.
Meanwhile, loan performance has remained fairly steady, even as they continue to make regular pricing adjustments.
On Monday, the company’s CFO, David Kimball, was promoted to CEO to take over Aaron Vermut’s role. Vermut will remain on the company’s board.
Kabbage Appoints Payments Industry Veterans as CTO and Data Officer
November 14, 2016
Small business lending marketplace Kabbage appointed a new CTO and chief data officer last week.
The Atlanta-based company that uses technology and data to underwrite loans hired Amala Duggirala as the new CTO. Duggirala is a two decade industry veteran and prior to this, was the executive vice president of global software development and implementations services at ACI Worldwide. There, she was responsible for developing end-to-end payment technology between consumers and retailers and accountable for the architecture, development and delivery of nearly 30 payments products. At Kabbage, she will lead the automation of the Kabbage platform and developing new products for growth.
The company also appointed the former head of analytics and insights at eBay, Rama Rao as the chief data officer. Rao also brings 20 years of experience in analytics, risk and payments. Rao holds a Ph.D. from MIT and built the risk analytics team at PayPal to manage its global risk policies. At Kabbage, he will lead the strategy for data, decision science, analytics and risk.
“We’re thrilled to have Amala and Rama join Kabbage to help us achieve our mission of sitting at the center of small business existence, both directly and through our partnerships globally,” said Rob Frohwein, co-founder and CEO of Kabbage.
The Art of The ‘Thiel’ – With Fintech Leader On Trump’s Transition Team, Alternative Lenders Could Benefit
November 13, 2016
Peter Thiel is famous for a lot of things, co-founding PayPal, backing Hulk Hogan’s lawsuit against Gawker and being a billionaire venture capitalist, just to name a few. Accustomed to shaking up Silicon Valley with his investments and antics, these days Thiel stands to impart his wisdom on another region, Washington DC. That’s because last week he became part of the Executive Committee of President-Elect Trump’s transition team.
After speaking at the 2016 Republican National Convention and donating $1.25 million towards Trump’s election efforts, his allegiance to the campaign should come as no surprise. His support is said to be genuine too, and that’s perhaps because the two have relied on similar rhetoric to make their points.
“Competition is For Losers”
Who said that quote? If you thought Donald Trump, you’re wrong, but you wouldn’t be blamed for thinking that given that so much of Trump’s mantra was focused on America “winning.” Competition is For Losers is the title of a 2014 Wall Street Journal essay penned by Thiel, that argued a perfectly competitive marketplace, an economic utopia, is flawed. “In business, equilibrium means stasis, and stasis means death,” he wrote. Entrepreneurs should instead strive for a monopoly, to win, he explained.
Winning is certainly something Thiel has done a lot of, making him a role model of the Trump credo.
“I think they should be described as terrorists, not as writers or reporters.”
Who said that quote? If you thought Donald Trump, you’re wrong, but you wouldn’t be blamed for thinking that given Trump’s hostility towards the media. Thiel said that in 2009 about Gawker reporters, and he bottled up that disdain and unleashed it in the form of financial support for Hulk Hogan against Gawker in a lawsuit years later, the force of which crippled Gawker and put the company into bankruptcy. It’s a revenge narrative that sounds oddly Trumpesque.
While there are likely more contrasts between the two men than similarities like these, both share a special penchant for winning. And more to the point, in a Trump presidency, Thiel may have his ear.
That should be welcome news to fintech and alternative lenders, given Thiel’s strong financial interest in that sector. Small business lender OnDeck has already experienced a 43% increase in its stock price since Trump was announced the winner. Enova, which bought merchant cash advance firm The Business Backer, is up 13%. That’s no doubt in part a result of Trump’s campaign promises to put a moratorium on financial regulations and recent pledge to dismantle the Dodd-Frank Act.
But with Thiel, his ties to alternative lending and fintech were made evident when he gave the keynote speech at LendIt earlier this year in San Francisco, in which he colorfully reiterated his theory about competition being a losing endeavor. “If you want to compete like crazy, you should just leave the conference and try to open a restaurant in San Francisco,” he said.
Thiel participated in SoFi’s $80 Million Series C round and Avant’s $225 million Series D round. “There are a lot of banks in the United States, but not enough access to credit,” he said in an announcement for the latter at the time.
He also participated in ZestFinance’s Series C round and both OnDeck’s D and E rounds.
And more recently, his VC fund, Founder’s Fund, led the $100 million Series D round of Affirm. The fund has also invested in Able Lending, BitPay and Upstart.
Last month, Phin Upham, a principal of Thiel Capital, another of Thiel’s investment firms, dismissed Goldman Sachs’ recent attempt to cash in on tech-based lending. “I wonder if Goldman will actually be able to keep up, because this is not a mature industry, everything changes sometimes within months.”
The NY Times reported that Thiel will not be moving to Washington and may not have a formal role in the administration, but that he will have a voice.
“A page in the book of history has turned, and there is an opening to think about some of our problems from a new perspective,” the Times reported Thiel saying. “I’ll try to help the president in any way I can.”
If truly given the opportunity to do so, Thiel’s influence could be a boon to fintech and the larger economy as a whole.
At the Money2020 conference last month, Trump was largely and quite openly derided by industry leaders. They may soon be changing their tune.
Other members of the Executive Committee of the transition team include:
- Congressman Lou Barletta
- Congresswoman Marsha Blackburn
- Florida Attorney General Pam Bondi
- Congressman Chris Collins
- Jared Kushner
- Congressman Tom Marino
- Rebekah Mercer
- Steven Mnuchin
- Congressman Devin Nunesv
- Anthony Scaramucci
- Donald Trump Jr.
- Eric Trump
- Ivanka Trump
- RNC Chairman Reince Priebus
- Trump Campaign CEO Stephen K. Bannon
It is quite possible that we may soon be making fintech ‘Great Again’
Make Funding Great Again – Triumphant Trump Trumps Clinton In Big Upset
November 9, 2016
The signs were there, surveys showed, at least a few that deBanked made reference to back in August. Small business owners felt Trump had their best interests at heart by a 2 to 1 margin over those who felt that about Clinton, according to a Capify survey.
Taxes ranked among their biggest concerns, with 20% of business owners ranking taxes as the single most important problem facing their business, according to a survey conducted by the National Federation of Independent Business. And Trump was in tune to that.
“Under my plan, no American company will pay more than 15% of their business income in taxes,” Trump said in Detroit on August 8th. He’s also proposed a moratorium on new financial regulations.
But up on the hill, the chatter over the last few months among the political establishment, including republicans, has been one of uncertainty. No one has been able to ascertain for sure what Trump’s positions would actually be or what agenda he’d actually set. And this wildcard status is probably what helped him win the election in the first place.
On his website however, Trump says that “we will no longer regulate our companies and our jobs out of existence,” and that he’ll “issue a temporary moratorium on new agency regulations that are not compelled by Congress or public safety in order to give our American companies the certainty they need to reinvest in our community, get cash off of the sidelines, start hiring again, and expanding businesses.”
That may be good news for the fintech industry which has grown increasingly concerned and preoccupied with potential regulatory changes. One potential conflict could arise with the CFPB, however, which has argued that its own executive branch authority operates outside the scope of the President of the United States.
In October, the United States Court of Appeals for the District of Columbia Circuit, ruled that the CFPB’s power structure violated Article II of the Constitution.
It’s too early to tell what Trump will really do and we’ll likely learn more about his goals over the next few months. Until then, prepare to Make The Industry Great Again…
On the Road to Recovery? Lending Club Shrinks Quarterly Losses, Announces Major Loan Buyer
November 7, 2016
Is Lending Club on the path to recovery, yet?
The marketplace lending company’s Q3 loss of of $36.5 million paled in comparison to the $81.4 million loss in the previous quarter, but the improvement is not as significant as it looks. That’s because Q2’s extremely poor showing was largely a result of the $35.4 million goodwill write-down of Springstone Financial and one-time “unusual expenses” related to an internal investigation into the previous CEO’s scandalous exit.
The $36 million loss is a far cry from the profit they turned in Q3 of last year however, but that spread is also deceiving. That’s because $20 million of it can be attributed to still more one-time costs related to Laplanche’s departure and an additional $11 million is due to incentives paid out to money managers to buy their loans. They stopped paying out incentives at the end of August.
Operating revenue grew 10 percent QoQ from $102.4 million to $112.6 million, but shrank by 2 percent annually from $115.1 million.
The stock closed up 15% on the day, but it’s still down more than 60% from the IPO price. The day’s rally was bolstered in part by an announcement that a US subsidiary of National Bank of Canada, Credigy, agreed to buy up to $1.3 billion worth of loans through the Lending Club platform over the next twelve months.
Loan originations grew marginally – $1.97 billion, up 1 percent from $1.96 billion in Q2, down 12 percent compared to $2.24 billion last year.
“I am very pleased with our performance in the third quarter. We actively reengaged with investors of all types to deliver on our plan and enable $2 billion in loan originations,” said Lending Club’s President and CEO, Scott Sanborn in a statement. “While we’ve made incredible progress, there is still work to be done. In the months ahead we are focused on increasing the diversity and resiliency of our funding mix, realigning our resources, and regaining our operating rhythm.”
At the Money 20/20 event last month, Sanborn announced that the company will foray into the $40 billion auto refinance market and said that he remains bullish about the company’s future in this new venture. The marketplace lender is offering loans in the range of $5,000 – $50,000 with APRs ranging from 2.49 percent to 19.99 percent for terms up to 72 months.
The third quarter has been an eventful one for the company which saw some management shuffle too. CFO Carrie Dolan was replaced by Thomas Casey, former CFO at the medical device company, Acelity. And, citing high delinquencies, the company also raised interest rates by a weighted average of 26 basis points, with high a concentration on F and G grade loans, in October.
One major cause for concern, however, remains to be the thinning retail investor base. While the company expanded its investor base to 142,000 active individual investors, investment was down to $273 million in the third quarter, from $327 million in Q2.
