Peer to peer lending service Lending Club will close a $10.26 million series A round of financing from Norwest Venture Partners and Canaan Partners tomorrow. This comes a few months after the company’s $2 million angel round. Coinciding with the investment, Jeff Crowe and Dan Ciporin (former ceo of shopping.com) are joining Lending Club’s board of directors.
Similar to other P2P lending sites (Prosper, Zopa, Kiva), LendingClub matches borrowers and lenders. However, LendingClub doesn’t work through their own website, but solely through Facebook on the application they launched at the F8 platform launch conference. Borrows and lenders a linked up using their “LendingMatch” system, which recommends loans based on credit and their social relationships to each other. The idea being that trusted relationships make lending more likely and defaults less likely. The application currently has over 13,000 installs.
Unlike Prosper, interest rates aren’t determined through bidding, but calculated based on the borrowers credit score, debt to income ratio, and amount of the loan. There are no hidden fees, and the interest rate is fixed for three years. In July the service surpassed $500K in loans. They recently claimed a little more than 4 out of 5 loans get funded and haven’t reported any defaults or late payments.
It’s still the early days for this industry, and as TC commenters point out, it’s very much a case of Caveat Emptor.
As more people older than the usual college crowd join the ranks on Facebook, this type of service will become more valuable. Seems like a good time to strike on this type of service. But it seems like they might end up with a lot more lenders than with people needing loans. Any loan to lender ratios or other information available?
Prosper is still tops in peer to peer lending. The bidding concept is great. LendingClub will be little more than an ‘also ran’.
The finance space is hot right now as people harness the social networks to provide value added services. The thing is that in loans the big money is in home loans or bigger. If lendingclub will get there, now that’s interesting. Other financial services can come online as well, yet again the challenge is to deal with mass products.
@David - There is a ton of information available on the Lending Club blog - blog.lendingclub.com
Rex
boring. anyone can do this no barrier to entry. this is 10M for marketing
Yawn. For serious stuff, people would rather not operate through their Facebook profile. You’re not going to handle your mortgage, bills, etc. through Facebook. All the techies seem to forget that since they are too busy jerking each other off.
P2P lending on Facebook is SUCH a great idea!
@5 - I tend to think that barrier to entry for this is higher than your usual video sharing youtube clones.
Facebook is a great viral platform, other social networks I am sure would want to jump on the wagon & monetize themselves through Lending Club and the like. Since there are only two players in the US in the p2p lending space there must be pretty solid barriers to entry.
“…and haven’t reported any defaults or late payments.”
Something tells me this won’t necessarily be the case sometime down the line.
@Jimmy Huen - come on man, we want another video something!!! Video is where it’s at man!!! thanks btw…
@Gary - Probably so, but so far, so good. It’s early obviously, but no loan place has “zero defaults”. It’s just good to know that so far it’s working.
Rex
I’m really curious what they will do with 12 mio in cash??? Obviosly their marketing is completely viral within Facebook so negligable costs there; The main IT infrastructure and software is already in place - so no need to spend millions there as well. Maybe 1-2 million as salary for a handful of employees and the entrepreneurs themselves over the next 12 months…seriously - what do they do with that kind of money??? And is it worth to give away valuable equity % to VCs (I suppose for that sum they would have given away 20-30%) when you don’t really have an urgent need for that money??? Please comment.
Could someone please explain caveat emptor? No stupid comments. Thanks.
@tom - buyer beware - Latin
@Wonderer - well there are many things coming up very soon that will be announced slowly and when we are ready.
Rex
I don’t like this business model nor do I really like the Prosper model either, just look at the amount of defaults particularly in the sub prime markets that they opened up. Fraud is also rife on Prosper. I think IM has a serious drug problem, Zopa all the way for me.
@kirklean - Patrick Gannon our Sr VP addressed the Subprime Meltdown in a great post on Saturday 8/18 on the blog - go give it a read, and chime in your thoughts on the comments.
Rex
Agree with #9 : major barriers for others (regulatory approval by each state+technology) = only 2 players in the US
Lendingclub seems to be learning from Prosper mistakes — low default rates are key to success. Prosper is having major default issues, great that Lendingclub is more restrictive and shows much lower defaults than prosper.
@Thinker - if you read John’s latest post on the blog; the last one from yesterday, as well as this morning’s official funding announcement post by Renaud - it does show that 75% of the applications were rejected due to our 640+ FICO score requirements and 20% DTI ratio. Still, we are closing in on $1 million in loans really quick when you consider the launch of the company was on May 24th with the fb app launch.
Rex
Apart from anything else, the Prosper Customer Service and experience is not particularly nice either.
Zopa pay interest on holding account money (currently 5%) where as Prosper in particular tell the lender to naff off when that question is raised.
Another thing, the forum aspect of Zopa is by far the best I have seen and Zopa employees actively engage in customer relations and fix issues that we find annoying and there is a whole raft of improvements on the way.
I am even cosidering throwing in my SIPP (Self Invested Pension Plan) money into Zopa as a basic rate tax payer, will make my savings ultra efficient for retirement.
I challenge Facebook/LendingClub or Prosper to beat that.
Currently I am making circa 9.9% with zero defaults.
Kirklean,
Sounds good. When is Zopa coming to the USA? First it was 2006, then 2007, then 2008. When is it?
Gerry