McKinsey: 2015e - 60% more efficient than the equivalent banking business on costs as % of loan balances (no branches/ legacy systems/ expensive regulatory capital to service) Table: 695 (bank) vs 270 (p2p) *Liberum, Foundation Capital
P2P Lending: Prosper
Prosper Marketplace, Inc.
Valuation March, 2015
Alex Davidov, Allen Miller, Michael Mongiardini, Patrick Montague, Connor Wilson
Prosper Marketplace, Inc.
– We are valuing Prosper at $1.507 billion for its current funding round.
– The peer-to-peer lending market is growing rapidly, likely to reach $300bn+ by 2025 in loan
– However, Prosper possesses few competitive advantages, which are eroding over time.
– In addition, more and more competitors, especially those with a vertical focus, are entering the market,
slowing growth and driving down margins.
– As a result, we would only recommend buying Prosper at or below the $1.51bn current value.
– Peer-to-peer lending marketplace to originate and service borrower loans and notes in the United States. The open and
low cost nature of its platform allows both lenders and borrowers to realize competitive rates/returns.
– A la retail, online P2P lending marketplaces utilize technology to vastly lower costs of financial intermediation:
– As a result, Prosper can offer both higher yields to lenders and lower rates to borrowers, agnostic of interest rate
– Industry analysts* predict CAGR 48-59% in annual loan volume (originations)
From Borrowers: Origination Fees (typically, 2-5% of principal)
From Lenders: Annual Servicing Fees and/or Refi Fees (typically, annual fees = 1% of loan balance)
U.S. Peer-to-Peer Lending Market Analysis
U.S. P2P Market Analysis
$3.2 trillion Total Consumer Credit Outstanding
$880 billion Revolving Consumer Credit Outstanding
65.60% % of eligible U.S. population (FICO > 650)
$577 billion Total Addressable Market
$7 billion Current Market Size
1.2% of total addressable market
~ $306 billion 2025 Market Size
Headwinds to Growth:
- 77% of Loans used for Refinancing Debt
- Dodd-Frank and risk-retention concerns
- Lending Clubs' slowing growth
- Historical default risk is misleading
– Generalist P2P Lending Platforms (Lending Club, Prosper)
– Vertically focused lending marketplaces (SoFi/Commonbond in Edu; OnDeck in SMB Credit)
Traditional Lenders (banks, etc.) - Still control 99% of consumer lending
Source: Foundation Capital Marketplace Lending Whitepaper, 2014
Low to Moderate competitive advantages but future unclear
Scale Customer Captivity Cost
Early On (2006 – 2010)
High Low Mid High High Mid Low
Low Low Mid Low Low Low Low
Present (2010 ->)
Mid Low Mid Mid Mid Mid Low
Mid Low Mid Mid Mid Low Low
• While Prosper has distanced itself from most other P2P lending marketplaces, it lags Lending Club in
terms strength of network effects and customer captivity.
• Emerging vertical-focused P2P lending marketplaces (e.g. Sofi in student lending and OnDeck in
SMB lending) threaten to weaken Prosper’s network effects and customer captivity.