Fred’s blog has an analysis of the financial data of the series D funding round Prosper Marketplace recently completed. The analysis shows that the valuation by the VCs per share issued dropped from 9.69 US$ per share in round C (June 2007) to 0.72 US$ per share in round D.
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Prosper Raises 14.7 million US$ Series D Funding
Prosper Marketplace Inc., has successfully closed a the new funding round, which it announced two weeks ago. Prosper receives 14.7 million US$ from new investors Tomorrow Ventures and CompuCredit Holdings and existing investors Accel Partners, Benchmark Capital, DAG Ventures, Meritech Capital Partners, Omidyar Network, QED Investors and Volition Capital. TomorrowVentures is the investment vehicle for Google CEO Eric Schmidt.
P2P Lending Service Lending Club Raises 24.5 Million US$ Series C Round
P2P Lending service Lendingclub.com successfully raised further capital. The 24.5 million US$ series C round was led by Foundation Capital and joined by existing investors including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.
Lending Club so far raised 52.7 million US$ in total funding.
Lending Club, on which lenders have funded loans to private borrowers for a total volume of over 103 million US$ since inception, is growing fast. Currently about 10,000 loans are originated per month equaling a loan volume of about 8 to 9 million US$ per month.
The monthly volume is a multiple of that of Prosper Marketplace, the main competitor in the US peer-to-peer lending market.
Renaud Laplanche, CEO of Lending Club says “This latest investment gives us considerable resources to further develop our platform, launch new products, offer better service to our existing customers and expand our reach to a whole new set of customers.”.
(Sources: press release via TechCrunch, Lending Club Statistics, own data)
Annualized Default Rate
I just watched the recorded webcast. It’s great that Lending Club uses these to communicate to the users. However I found the way some information were presented to the lenders to be controversial. About 11 minutes into the presentation the company advertises the Annualized Default Rate of 2.36%. Looking at the slide at 0:13:29 the company states “Less than Three Loans out of the 100 Default”. Is that right – does the percentage of Annualized Default Rate figure match the percentage of loans that default?
This does not match Lendingclub’s own definition of Annualized Default Rate, which is:
Annualized Default Rate is calculated by dividing the total amount of loans in default by the total amount of loans issued for more than 120 days, divided by the number of months loans in default have been outstanding and multiplied by twelve. The loans issued for less than 120 days are excluded from the calculation because loans are unlikely to default during the first 120 days.
I’ll create the following example to illustrate what Annualized Default Rate means to lenders. Imagine a bad-lucked lender that loaned 10 loans with 100 US$ each 12 months ago. First all went well, but after 10 months suddenly 5 of his borrowers failed to pay and defaulted. Colloquially that lender might swear: “That sucks, 50% of my loans defaulted”
Under the formula this gives us an annualized default rate of 8.3%. That sounds much better, doesn’t it? The important difference is that the annualized default rate figure is just a snapshot taken right now. It will rise over the time until the loans mature (if the lender does not invest in new loans). So after 36 months it will be much higher while the figure “50% of my loans defaulted” will not have changed after 36 months (if the other 5 loans continue to be paid on time).
You may want to ask, if the figure could fall instead of rise? No, for a given portfolio the annualized default rate can only go up over time – no loan can return form a default but addituionally further loans could default.
So what does that mean?
First: An annualized default rate of 2,36% does not match the message “Less than Three Loans out of the 100 Default”.
Second: Most of Lending Club’s loans are very young and the overall loan volume is growing. So even if – due to growth – the annualized default rate stays at 2,36% overall, it will rise higher for given loan portfolios orginated in the past. (Compare: ‘Lending Club Default Rates Much Higher than Initially Expected?‘).
Note that the same effects impact the Net Annualized Return rate.
Prosper Raising $13.3 to $15.8M Round
Peer to Peer lending service Prosper is raising it’s fourth funding round. The company announced it is raising between 13.3 and 15.8 million US$. Prosper expects the deal to be closed by April 15th and says a LOI has been signed with new and existing investors.
People Capital Post Launch Figures
First figures about lending activity on p2p lending service for student loans People Capital (related articles: People Capital) which launched earlier this month say that so far five to six students received loans for a total of 100,000 US$ from 5 lenders with another 45 students awaiting funding.
Lenders must have accredited investor status to lend. Financial institutions can sign up as lenders, too.
More details in this New York Times article.