Prosper's valuation rises to $1.9bn in latest funding round

Prosper Marketplace, the second-biggest peer-to-peer lender in the US, has closed a new financing round that has boosted its valuation to $1.9bn, roughly three times the figure of a year ago, as it tries to keep a lid on losses amid rapid loan growth.

The San Francisco-based company said on Thursday that investors including Credit Suisse, JPMorgan and BBVA Ventures had provided $160m of "expansion capital," allowing it to develop a facility in Phoenix, Arizona, where it is focusing on vetting applicants for its unsecured personal loans.

That new operation, opened last August, is critical in ensuring that Prosper does not let its lending standards slip as it chases higher loan volumes through a variety of marketing channels, said Aaron Vermut, chief executive. Originations during the first quarter came to a record $590m, three times greater than the same period in 2014, pushing Prosper through the $3bn mark in total.

"Those people are kind of our boots on the ground," he said, referring to about 90 staff in Phoenix in underwriting and verification. "Unlike some other companies out there, we really see underwriting as the most important thing we do, the glue that holds the marketplace together."

Prosper is among the fastest growing of a new breed of non-banks, which aim to use online platforms and data-driven technology to directly connect borrowers with lenders, extending financing at a lower rate than that offered by traditional banks while simultaneously generating higher returns for investors.

Growth in the personal loans segment has been particularly strong, prompting analysts at Goldman Sachs to predict last month that the new entrants could control up to 15 per cent of the $843bn market over the next ten years, from less than 2 per cent today.

But finding creditworthy customers at a reasonable cost is still a big challenge for the P2P, or "marketplace" lenders. Until now, institutions such as BlackRock have been attracted to Prosper's historic net annual returns of about 9.3 per cent across its portfolio. But if losses rise from current levels of about 6.6 per cent, compressing those returns, then investors could start to walk away as they did between 2010 and 2012, when Prosper began what Mr Vermut calls a "slide into subprime" under its previous management team.

The latest financing round, Prosper's fourth since the company was relaunched in early 2013, comes just 11 months after it was valued at $650m by a $70m cash infusion from a group led by Francisco Partners, a technology-focused private equity house. It will fan speculation that Prosper is preparing to follow the industry's biggest player, Lending Club, in listing its shares in New York.

"We are definitely progressing down the right path, but the company needs to be ready for [an IPO], with really strong business processes, and all the right people in all the right seats," Mr Vermut said, noting that traditional banks - still anxious to preserve capital and avoid the close attention of regulators - remain reluctant to compete in unsecured loans.

"I think we're in middle of a secular change in the way financial services are offered to people in this country," he said.

Some of the proceeds of the fundraising will be spent on sales operations in Salt Lake City, where Prosper recently bought a software business allowing it to make inroads into the $20bn elective-surgery loan market.

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