Lending Club raises $12 million

Lending Club just announced they raised an additional $12 million in funding and hired a new marketing officer. Previous funding includes $10 million in late 2007 and an additional $4 million in September 2008. From the press release:

SUNNYVALE, Calif.--(BUSINESS WIRE)--LendingClub.com, the peer lending network that brings together investors and creditworthy borrowers, announced today that it has closed a $12 million Series B round of funding. Morgenthaler Ventures led the round and is joined by existing investors, Norwest Venture Partners and Canaan Partners. Rebecca Lynn, a Morgenthaler Principal, is joining Lending Club’s board of directors.

Lending Club also announced today that it has added Pamela Kramer as Chief Marketing Officer. Ms. Kramer is an established marketing veteran with more than 17 years of experience. She was most recently Chief Marketing Officer of MarketTools, Inc and, before that, spent 9 years in leadership roles with E*TRADE Financial helping to shape the development of online investing in various capacities, including most recently as Chief Marketing Officer.

“This additional capital will allow us to continue to expand our capabilities and accelerate the growth of our customer base. Lending Club is proud to be building a network where individuals come together to provide financial value to each other beyond what traditional banks can provide. We are equally proud to have great investment partners in Morgenthaler, Norwest and Canaan Partners,” said Renaud Laplanche, Lending Club’s CEO and Founder.

“We were attracted to Lending Club because it offers a compelling proposition in any market, but especially in today’s environment,” said Rebecca Lynn, Principal at Morgenthaler Ventures, “Borrower members find much-needed relief in a tight credit environment, and lender members have earned an average annual return of 9.05% over the last 20 months, which is better than most investment alternatives.”

P2P venture capital a viable niche?

BizzFlip published a thought provoking article where they proposed P2P lending for venture capital.

"With Peer to Peer Venture Capital (or maybe to be a little more accurate think of it as Peer to Peer Angel Money), a person would be giving money to (or investing in) a company, product, idea, etc. in hopes of making a large amount of money off of a percentage of the profits.

It seems intuitively that off the top there will be some obstacles to making P2P Venture Capital a reality. First off, how do you determine someone is credible and not a Conman? That one seems like a relatively easy fix with certain qualifications needed to become a member. More importantly is that venture capital is a little bit different than loans. There are certain negotiations needed and what about non-disclosures? Then the legal terms will have to be laid out for each potential deal. I can anticipate that some variation of the P2P Venture Capital idea will sprout up in the next few months or years (if there aren’t any already that I haven’t heard of)."

TechDirt counters with this argument - Isn't P2P Venture Capital Just Going Public?

"As there appears to be a growing market for p2p lending services, that has some wondering if there's also a market for p2p venture capital as well. In p2p lending, a group of ordinary folks all team up to lend people money. The various players in the space have had somewhat mixed results so far, but there's a lot of attention. However, for most companies, getting access to capital involves options between taking out a loan (which needs to be paid back plus interest) or selling equity (usually to venture capitalists). In that case, the money comes from someone who takes some percentage of ownership and hopes to cash in not on the interest, but on the growth of the value of his or her shares. So, it might make sense to wonder whether the p2p lending companies might eventually move into p2p venture capital as well... except that we already have p2p venture capital: it's called the public equities markets. If you actually tried to do that with private companies, you'd quickly run into all sorts of trouble with the SEC, which is pretty strict in terms of regulating how a company goes about raising money in exchange for equity. In fact, there are many who believe that a startup may be toeing the SEC's line simply by saying that it's out raising venture money. So, for a variety of reasons, both regulatory and because public equities markets already are p2p venture capital offerings, it's hard to see there being a huge market for companies to get into offering p2p venture capital."

GlobeFunder to launch October 2nd

GlobeFunder has announced on their blog that they will launch in "less than 1 month" and in an email have set the date as October 2nd. GlobeFunder describes themselves as the "first true global small loan marketplace dedicated to offering investors new alternative investment vehicles in an online brokerage like marketplace while simultaneously offering borrowers the opportunity to consolidate their debt and enjoy a decrease in their monthly debt payments by offering lower interest rates." In June GlobeFunder raised $1.5 million in seed capital. Wiseclerk recently interviewed Brian Mullally, GlobeFunder's Co-Founder and CEO. GlobeFunder has also been featured in MicroCapital and Michigan Live. Here is some information about GlobeFunder from their website:

About GlobeFunder

GlobeFunder is committed to being the leader in providing loan funding where it is needed most, at market-driven interest rates, with the highest levels of service and integrity. GlobeFunder's lending marketplace scales by lowering capital costs for borrowers and providing market-driven investment returns for lenders. GlobeFunder's mission is to change the lending industry for positive impact to borrowers and lenders around the world.

GlobeFunder Investors

GlobeFunder members decide where to direct their funds in an automatic and aggregated loan selection search process, making loans to borrowers. Loans are auctioned to ensure market-driven interest rates, and payments will facilitate transactions from lenders to fund loans in GlobeFunder. Loan funding and borrower repayments will be processed and serviced by GlobeFunder.

GlobeFunder Borrowers

Borrowers are US individuals and participating institutions in the microfinance industry from around the world that need capital. The October 2007 launch of GlobeFunder will provide a marketplace to US borrowers seeking loan funding. Prospective borrowers may join GlobeFunder online, and several important verification checks are conducted before borrowers are able to post a loan request including identity checks, credit scoring, residency, debt and income, qualifying their loan and then ultimately originating the loan if approved. US borrower loan request are then published on GlobeFunder and auctioned to US lenders.

Lending Club receives $10 million in venture capital

Tomorrow Lending Club will announce that is has received $10.26 million in Series A funding led by Canaan Partners and Norwest Venture Partners. Since its launch three months ago, nearly $1 million in loans have traded hands on the peer to peer loan marketplace. According to TechCrunch, Jeff Crowe and Dan Ciporin (former CEO of Shopping.com) are also joining Lending Club's board of directors.

Rex Dixon, director of social media content, says Lending Club will use this money to expand beyond the Facebook platform. GigaOM also writes about the Facebook connection, "It may turn out to be a new way of proving your model: Launch an application on the Facebook Platform, see if it works, and if it does, take your hard data to a group of VCs and raise capital to grow your business." As I wrote about in an earlier post, I think the Lending Club/Facebook association is overblown. The technical challenges of moving from Lending Club to a broader audience seem very small and would probably cost little money. I would have to guess that Lending Club plans to launch a significant marketing campaign with the funds and hire more people.

The peer to peer lending market is hot right now. In June Prosper secured an additional $20 million in venture captial (for a total of $40 million) and will expand to Japan. Globefunder has raised 1.5 million in seed capital and Loanio is expected to launch this fall.

Update: Lending Club has now announced the VC on their blog. According to their CEO, Renaud Laplanche, "Facebook now has over 6 million active user groups which are prime targets for financial services. However, Facebook users are younger than the average online population, and our strict screening criteria (640 minimum credit score, less than 20% DTI) led us to decline about 75% of all applications, as younger borrowers tend to have a lower FICO score. We are coming up with new tools to help the “declined” borrowers understand the importance of good credit and take specific actions to improve their credit score. We will be using the funds to expand beyond our current Facebook application."

Using P2P lending to fund a startup

Most agree that web has significantly reduced the cost to start a new business. Paul Graham has written a great series of essays on how to start a startup with great information on funding. In his essay How to Fund a Startup he said that he started his company, Viaweb, with $10,000 from a friend. Excite founders borrowed $15,000 from their parents. The more traditional route is to look for angel investors, seed funding firms, or venture capital funds.

One question you have to answer is how much money do you really need? Prosper has raised $40 million in venture capital but we see several possible competitors (1, 2, 3) attempting to build a "Prosper clone" for less than $5,000. One big disadvantage of seeking funding from outside is that it is very time consuming. This is time that you could be using to build the company. In the Hacker's Guide to Investors, Graham said, "Raising money is a huge time suck at just the point where startups can least afford it...Investors have no idea how much they damage the companies they invest in by taking so long to do it."

Seeking funding through a lending site like Prosper could be a great way to shortcut startup funding. Funding can be obtained in days while it might take weeks or months through more traditional means. Of course, you are limited to $25,000 but that is about what most web-based startups need.

Today's Wall Street Journal has an article about using peer to peer lending sites to fund startups - Making the Most of Online Matchmaking for Small Firms. The article is focused on Go Big, a site that launced last year, which is described as "a dating site for start-ups, where entrepreneurs can create profiles and post ads looking for investors and others to help start their businesses." Prosper is also mentioned, "Several lender-borrower matchmaking sites have popped up in recent months. Like Go Big, RaiseCapital.com and FundingUniverse.com are designed for small companies seeking a cash infusion. Prosper.com focuses on individuals looking for money." Wil Schroter, who founded Go Big says, on his site "there are 99 companies looking for funding for every investor."


While borrowing on Prosper can reduce the time required to get funding, it is a loan which you have to pay back. The benefit is that you retain full ownership of the company. You will, however, have to start monthly payments right away. A $25,000 loan at 12.76% interest (average interest rate for AA credit grade for a loan that size), for example, will have payments of $839/month. If you have no positive cash flow or means to repay the loan you risk defaulting. Also, if you do not have good personal credit it is very difficult to get a large loan on Prosper.

One advantage of funding a loan through traditional means is that the investor may be well connected and can assist in other ways besides just the funding. The same may be true on Prosper on a smaller scale. It is possible that some of the lenders on your loan will take a personal interest in helping you succeed and may offer advice.

Borrow funds on Prosper here.

Prosper secures an additional $20 million in capital

Rateladder broke the news last night based on a tip from Prosper Nights SF - Prosper secured an additional $20 Million in Venture Capital. It was confirmed this morning with a press release. Rateladder quotes someone, not sure who, as saying, “We weren’t looking to raise money, but it is a good market to raise funds right now.” According to the press release, this $20 million was led by DAG Ventures and Meritech Capital Partners and included current investors - Accel Partners, Benchmark Capital, Fidelity Ventures and Omidyar Network. This brings the total capital raised to $40 million. They had to figure out somehow to pay all those referral fees, right? Chris Larsen, Co-founder and Chief Executive Officer of Prosper said, “This latest round of financing provides us with considerable resources toward maintaining our leadership position and continuing to rapidly grow the Prosper marketplace.”

Update: Rateladder updated his post (and added a comment here). The quote above is from Chris Larsen, Prosper CEO. Also, see TechCrunch's coverage here.