2. 2
Prosper Marketplace, Inc.
Investment Thesis
– 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
originations.
– 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.
3. Prosper Marketplace
– 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
environment.
Growth
– Industry analysts* predict CAGR 48-59% in annual loan volume (originations)
Revenue
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)
3
Service Description
4. 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
4
5. 5
Competitive Landscape
Lending Marketplaces
– 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
6. Low to Moderate competitive advantages but future unclear
Government
Regulation
Scale Customer Captivity Cost
SEC Filing
Fixed
Costs
Network
Effects
Switching
Cost
Search Costs
Proprietary
Technology
Special
Resources
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.
6
