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Online lenders from OnDeck to Lending Club are forming partnerships with traditional financial institutions, prompting some observers to wonder if they might one day be willing to become banks themselves.
November 24 -
The billionaire investor George Soros is in talks to throw his support behind the peer-to-peer finance industry, which is increasingly leaning on traditional capital sources to lower its costs of funding.
November 25 -
As banks struggle to make sense of their wealth of customer information, the burgeoning industry of online marketplace lending is finding novel ways to glean insights from unconventional data points.
November 5 -
Capital One and Regions Financial are downplaying their interest in partnering with peer-to-peer lenders because of concerns about the risks associated with them.
October 24 -
Industry boosters say the sky's the limit, as a flood of capital enables the rapid growth of peer-to-peer lending. But some skeptics are urging caution.
May 7
LendingClub Corp. is seeking to raise as much as $692 million in the first initial public offering of a peer-to-peer lender.
LendingClub plans to offer 57.7 million shares for $10 to $12 each, according to a regulatory filing today. That implies a valuation of as high as $4.3 billion, based on 361.1 million shares outstanding, which excludes shares linked to certain stock options and employee compensation plans.
Today's disclosures allow the San Francisco-based company to start marketing its share sale to fund managers through official meetings, known as a roadshow. LendingClub already has exposure to many institutional investors, which make up a growing portion of the investors on its digital platform.
The offering is a milestone for the peer-to-peer lending industry. In the past few years, dozens of businesses that connect investors with borrowers over the Internet have cropped up, seeking to disrupt the traditional banking model. Asset managers and hedge funds have begun to put money to work on the platforms, joining the individual investors who flocked to the sites earlier looking for above-average returns.
The share sale "legitimizes and confirms that peer-to-peer lending is for real and here to stay," said Don Davis, president of Prime Meridian Capital Management, which runs a fund that buys loans through LendingClub. "Borrowing and lending has changed forever."
At the high end of the IPO range, LendingClub would have a valuation of 44 times last year's revenue of about $98 million. While that's higher than the average multiple of 7 times sales for the 96 companies on the Nasdaq Internet Index, LendingClub is growing quickly. Revenue in the nine months through September topped $143 million, more than double the amount generated a year earlier.
LendingClub was valued at almost $3.8 billion in April in a $65 million funding round.
The concept for LendingClub began in 2006 after founder Renaud Laplanche, 44, noticed that his bank was charging him almost 17 percent on a credit-card balance, while the same institution was paying only 0.5 percent in interest on deposits in his savings account. He figured that an online marketplace could be a more efficient way for borrowers to pay a lower interest rate and lenders to earn a higher one, according to a letter included in the prospectus.
LendingClub helps issue loans ranging from $1,000 to $35,000 and then lists them on its website, where investors purchase the debt. The loans run for three or five years, with annual interest rates ranging from 6 percent for the highest-rated notes to 26 percent for the lowest-rated. Borrowers can use the proceeds to consolidate credit-card debt, fund home repairs or take a vacation, among other things.
Investor and borrower demand have helped originations more than double each year since the company was founded. The amount of loans funded climbed past $6 billion at the end of September.
That's helped boost revenue at LendingClub, which earns money by charging transaction and servicing fees. Operating revenue climbed to $144 million in the nine months ended Sept. 30, compared with $64 million in the same period a year earlier, according to a Nov. 5 regulatory filing.
Expenses at the company have climbed this year as it hired more staff and spent more on sales and marketing ahead of the IPO. Those costs caused it to report a net loss of $23.9 million in the first nine months, compared with a profit of $4.5 million in the period a year earlier.
While the company's focus is the U.S., LaPlanche has set his sights on a global expansion. Recently, LendingClub has also branched out into lending to small businesses and funding some medical and education expenses.
"Over time we plan to address a wide range of credit needs for a broad population of consumers and businesses globally," he wrote in the letter. "We are building a very big company and it's going to take a very long time."
That vision has attracted several high-profile backers. Former Morgan Stanley Chairman and Chief Executive Officer John Mack sits on LendingClub's board, as does Mary Meeker, who previously worked as a research analyst at the firm and is now a partner at Kleiner Perkins Caufield & Byers. Larry Summers, the former U.S. Treasury Secretary and president emeritus of Harvard University, is also a director.
LendingClub could be the first of many peer-to-peer lenders seeking to go public. Small-business lender On Deck Capital Inc. is readying an IPO and others are considering conducting share sales as well, people familiar with the matter have said.
When interest rates rise, peer-to-peer lenders, such as LendingClub, could be hurt, according to Fitch Ratings, which conducted a report on the industry in August. The model will be tested throughout the full interest rate cycle, which will determine its long-term success, the report shows.
Northwest Venture Partners, Canaan Partners, Foundation Capital LLC and Morgenthaler Ventures each hold stakes greater than 5 percent in LendingClub, according to the filing. LendingClub plans to use the proceeds from the IPO for working capital, operating expenses and potentially to repay debt.
Morgan Stanley and Goldman Sachs Group Inc. are managing the offering. LendingClub plans to list on the New York Stock Exchange under the symbol LC.
