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An Analysis of Lending Club’s $5 Billion Valuation

by Peter Renton on September 29, 2014

[Editor's note: Many people have been discussing Lending Club's somewhat lofty valuation so I thought it would be useful to bring in a valuation expert to do some analysis.  Ho Wan Lee, CFA, CAIA, is a senior associate in the valuation group of Arcstone Partners LLC. Arcstone specializes in the valuation of high-growth companies and complex securities. Current and former clients include some of Silicon Valley's best known tech companies.

Note that neither Lending Club nor Prosper are clients of Arcstone, nor does Arcstone have privileged information relating to Lending Club, which is the subject of Lee's analysis below. The analysis is the unique work of the author and is based entirely on information available to the public. Mr. Lee's analysis is provided for informational purposes only, does not constitute an opinion of value, and should not be construed as investment advice.]

Lending Club (“LC”), the world’s largest online marketplace connecting borrowers and investors through its online lending platform, is expected to launch its IPO in the coming weeks. The amount of the raise and the IPO placement price are still unknown at this point in time, but according to an article in the Financial Times the Company is anticipated to raise more than $500 million with an implied valuation of about $5.0 billion. One question apparently on everyone’s mind is this: is a $5.0 billion valuation reasonable?

The Company has shown rapid appreciation in value over the last several years. It was valued at $3.8 billion in April when it acquired Springstone, a company that facilitates education and patient financing. So to begin, a $5.0 billion IPO valuation represents a 33.3% increase in value from April of this year, and an annualized increase of 88.2%. Certainly, some of this increase in value could be explained by what we valuation analysts refer to as a “liquidity premium”, which essentially reflects the increase in value when a stock is freely tradable. Moreover, comparing the implied increase to the historical increase in observed valuations of LC while still a private company, the jump in price does not seem outrageous.

Table 1: LC’s valuation over time

Lending Club Valuation over time

So that’s one way to look at the $5.0 billion implied valuation. What about valuation multiples? Looking at LC’s venture round pricings on a multiple of total originations, it has remained relatively consistent in the 0.8x – 0.9x range. If we assume a 0.8x origination multiple, a $5.0 billion IPO valuation would imply LC’s total origination of $6.3 billion as of September 2014, which is not unreasonable considering LC’s recent trend.

Table 2: LC’s Valuation/Originations over time

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Peer to Peer Lending News Roundup – September 27, 2014

by Peter Renton on September 27, 2014

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

With Karrot, Kabbage Digs Into Lending Club’s And Prosper’s Consumer Loans Business from Techcrunch – Kabbage have done some groundbreaking work in small business loans; now they are taking on Lending Club and Prosper in consumer loans.

ALIBABA AIMS FOR $160 BILLION IN P2P LOANS IN CHINA from PYMTS.com – Alibaba didn’t have a p2p lending operation six months ago and they expect to be the world’s largest online lender by the end of next year.

The Lending Club IPO and Beyond: Equities.com Interview with Lend Academy’s Peter Renton from Equities.com – Further thoughts on the Lending Club IPO.

Realty Mogul Gets A $73M Capital Commitment From Direct Lending Investments from Techcrunch – Brendan Ross decides to add real estate to his high yield small business fund.

Funding Models For Loan Originators from Orchard – Matt Burton, CEO of the Orchard, provides an overview of the different online lending models.

Peer-to-peer lending comes of age as Wall Street muscles in from The Financial Times – The always insightful Tracy Alloway provides her perspective on the CircleBack/Funding Circle deal.

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LAP24: Jonathan Morris of Titan Bank on the Banking Perspective

September 24, 2014

In this edition of the Lend Academy Podcast we have someone quite a bit different than our typical guest. Jonathan Morris is a banker, but he is not your conservative banker who works at a big bank, he is very much an innovative and forward thinking banker. His bank, Titan Bank, was one of the [...]

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CircleBack Lending Secures a $500 Million Investment from Jefferies

September 23, 2014

For some time now we have had something of a duopoly in the consumer p2p lending space. Lending Club and Prosper have dominated the market and no strong third contender has emerged. Well, that is all about to change with the announcement today from CircleBack Lending. They have secured a $500 million deal with investment [...]

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Peer to Peer Lending News Roundup – September 20, 2014

September 20, 2014

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here. Lenders Turning to High-Interest Personal Loans from The Wall Street Journal (paid registration required) – Probably the most interesting article on [...]

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Lending Club Rolls Out Enhanced Reporting Features for Foliofn Users

September 18, 2014

Today, Lending Club has added some long awaited features for investors who use the Lending Club trading platform to buy and sell notes. Until today many people who traded notes on Foliofn had no idea what their actual returns were – these were often mispriced by Lending Club’s NAR calculation. No more. If you have [...]

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New Zealand P2P Platform Harmoney Launches With NZ$100 Million in Lending Capital

September 16, 2014

I hear from a lot of platforms both in the US and around the world in various stages of launch. Never before have I heard of a new platform launch with such a large cash war chest. Harmoney has received NZ$100 million (around US$80 million) in lending commitments – for a p2p platform to raise [...]

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Peer to Peer Lending News Roundup – September 13, 2014

September 13, 2014

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here. The Economic Health of a Borrower’s City Affects Loan Performance from Orchard – A guest post by a family [...]

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LAP23: Dave Girouard CEO and Co-Founder of Upstart

September 11, 2014

For many years the p2p lending industry in this country has been dominated by two platforms: Lending Club and Prosper. Dave Girouard, the CEO and Co-Founder of Upstart and guest on this edition of the podcast, wants to change that. Upstart began with a unique lending idea called Income Sharing Agreements but earlier this year they [...]

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The Lend Academy Speaking Calendar in the Next Month

September 10, 2014

This is a very busy fall for p2p lending conferences. And starting next week with the Apex Lending Exchange Lend Academy will be speaking at several conferences in the coming month. Here is a brief description of these conferences and the sessions where we will be presenting. Apex Lending Exchange: Sep 16-17 (New York City) [...]

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