Back in the heady days of early 2015 the marketplace lending industry was running at full throttle. Every company was growing fast and raising money at fantastic valuations as there seemed to be a bottomless pit of funding available for everyone.
It was against that backdrop that Prosper raised $165 million in April 2015 in a funding round that valued the company at a whopping $1.865 billion. As we now know the industry came crashing down to earth in 2016, the money dried up and valuations went down. Good companies have still been able to raise money but often at lower valuations than in 2015.
Earlier this week Prosper closed on a Series G transaction where they raised $50 million from an investment fund co-managed by FinEx Asia and LPG Capital based in Hong Kong. While Prosper would not confirm their new valuation sources said the post money valuation was $550 million. This represents a 70.5% drop in value from their high in 2015. So the rumors from last month are true.
At first glance one might think this is a bit of a disaster for the company to have dropped in value so much. But let’s look at Prosper’s closest competitor, Lending Club, for comparison. On April 2, 2015 Lending Club was trading at $19.26 a share. Yesterday the shares closed at $6.10 which is a 68% decline in valuation. This is pretty much in line with the decrease in valuation at Prosper.
Here is what CEO David Kimball said of this funding round:
This investment is a strong signal of confidence in our business fundamentals and the momentum we are seeing right now. Over the past year, we’ve shown that we can build a sustainable business that continues to redefine the online lending experience for our borrowers and investors. We believe this partnership will open up additional opportunities for our business as we continue to grow.
A spokesperson for Prosper told me that the money will not be used for operations but rather for new projects. Prosper is now cash flow positive with liquid assets of around $42 million as of Q2 2017. There was no dire need to get this funding round done but it will be helpful for them as they look to grow in a sustainable way.
My Take
There are two things I think that are significant here. First, like many funding rounds that have closed this year the money came from Asia. There is a huge amount of interest in fintech in Asia and an appetite to invest in US platforms. Second, the valuation was in line or even better than many people in the industry expected.
While we can certainly focus on the fact that Prosper is now worth only 30% of what they were worth in 2015 and those investors that funded that round are no doubt disappointed. But the industry is in a very different place today and it is easy to look back at those days and wonder what everyone was thinking.
Today, the tone of the industry has changed. Origination growth has taken a back seat to profitability – to get funded today every company needs to either be profitable or show a realistic pathway towards that in the near future. This is where Prosper has done a decent job. They laid off some people, adjusted their cost base to the size of their business and are on a solid footing again.
We are never going back to the halcyon days of 2015 and that is actually a good thing. In reality growth is far less important than profits. Creating sustainable businesses that can last for decades is now the focus.
Here is a link to the full press release.
