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Whether the startup's pricey valuation makes sense depends on whether you view it primarily as a tech firm or a financial company. And the answer to that question has big implications for the broader financial services world.
December 10 -
Blue Elephant Capital Management is planning a second fund to buy loans originated on online marketplaces. Unlike its first fund, this one will be unlevered, backed entirely by institutional investors' cash.
December 3
Renaud Laplanche is a happy if somewhat tired man. The company he founded, Lending Club, exceeded most expectations by closing its first day of public trading at $23.43 after starting at $15.
"It's been a terrific outcome for everybody involved," a cheerful but fatigued-sounding Laplanche told American Banker in the midst of a day of back-to-back interviews.
The marketplace lender is the first company of its kind to go public, in an initial public offering that
"It was a really smooth hand-off today," from private investors, including Google, to public ones, Laplanche said. Laplanche sounded unconcerned about the raised investor expectations that come from a valuation of approximately $9 billion, saying that Lending Club essentially planned "a lot of more of the same."
He later added that the IPO road show process helped temper longer-term expectations of investors.
"We haven't been either supply constrained or demand constrained, so we've picked our growth rate," Laplanche said, confident that Lending Club will continue to find borrowers and capital at the rate it wants . In Laplanche's view, Lending Club has only grown as fast as the company thinks is responsible. "We're going to take that growth rate down over time," he said, perhaps both because Lending Club's growth rate has been rapid and as a hedge for future performance.
One area where Lending Club will remain heavily active is credit card refinance, Laplanche said. This is an $880 billion market in his estimate. Where the average interest rate on a credit card is 17%, he says, the average refinance rate for Lending Club consumers is 12.5%.
Lending Club plans to continue its expansion into small business lending, an area many consider to have the highest potential for expansion amongst marketplace lenders. Some, like Funding Circle and On Deck, have specialized in this arena.
But perhaps of most interest to bankers, Laplanche plans to increase partnerships with bankers and other online lenders for loan "co-branding" offering Lending Club low-rate loans through institutional and alternative lending partners.
Now the Hard Part Comes
An investment banker who works with several alternative finance companies praises Lending Club's business model, track record and the success of its IPO. But he cautions that the company still has to answer questions to justify its high valuation. "You need to believe in that multi-business story, and possibly in that international story" in other words, that Lending Club will be able to expand beyond consumer loans and compete on a global scale.
"There's no question that it raises expectations and raises the bar very high for them," he said.
Several other marketplace lenders are likely to go public after seeing Lending Club's success. On Deck, a competitor in the small business space, will soon follow suit and there's speculation that Prosper, Lending Club's closest competitor, will as well. Ron Suber, the president of Prosper, often says that he goes to bed thankful for his wife, his kids, and Lending Club's IPO.
"It's rare to see an industry that's rooting for each other," said Matt Burton, co-founder and chief executive officer of the marketplace lending analytics and support firm Orchard Platform. "The pie's only getting bigger," he said.
Still, others might have trouble catching the same lightning in a bottle.
"I don't know if this is a one-off situation," the investment banker said, "but people know how much enthusiasm there was around this one name."
Hard work, and likely some failure, is ahead for the fast-moving alternative finance industry. But in the meantime, most are hopeful Lending Club's valuation will raise their own, regardless of whether they go public or not.
