I have been in San Francisco these past few days for a number of reasons. First, I was invited to speak on a panel about crowdfinance at the National Association of Business Economists annual meeting on Sunday. Second, we have decided to have LendIt 2014 in San Francisco and we did a number of site visits with potential venues. More on that in a week or two. Third, I wanted to use this opportunity to sit down and have some face to face meetings with the management teams at Lending Club and Prosper. Finally, I was invited out on the Lending Club yacht for a sail on San Francisco Bay. So, it has been quite a busy trip.
The Lending Club Yacht
Let’s start with the Lending Club yacht. Although I should clarify something here – it is not really the “Lending Club yacht”. Lending Club sponsored this yacht for a three month period that included the Transpacific Yacht Race in July and that period ended this past weekend. The owner of the boat will be taking off all the Lending Club branding and so the “Lending Club yacht” will be no more. Before that happened, though, last week Lending Club invited investors and partners to come out and have a sail around San Francisco Bay. My lucky turn came on Friday.
We had a beautiful morning on the bay with no fog and warm weather. A group of about 14 people, including several Lending Club employees, were driven out in a motor boat to meet the Lending Club yacht (I took the photo above as we neared the yacht). We climbed aboard and sailed around the bay for a couple of hours, going under the Golden Gate bridge and back close to Alcatraz Island. It was a great time, the only minor disappointment being the light winds. I was hoping for some windy conditions so we could really see the boat perform. It can go as fast as 30 knots (35 mph) but on our outing our top speed was 12 knots. Still, it what a fantastic experience and one I will remember for a long time.
Meeting With Lending Club Management
We didn’t talk shop much on the boat, I left that to our meetings on Monday. I sat down with both Renaud Laplanche and Scott Sanborn yesterday for a chat and also did a tour of their ever expanding office space. Lending Club is up to 275 employees now and occupy three floors of the building at 71 Stevenson Place in the San Francisco financial district. And they will be expanding to a fourth floor later this year.
One of the questions that everyone here wants to know is what they are doing to help retail investors, so a lot of my discussions centered on this topic. Laplanche said that they have been adding staff steadily over the summer so they can handle a much larger volume of loans on a daily basis that will help in the short term. In the last week we are starting to see the results of this with more loans being added than ever before.
I know there have been several discussions on this blog about putting restrictions on large investors to give the retail investors a better chance at investing in the loans they want. There have been many suggestions on the forum such as putting a $100 maximum note size on the fractional loan pool. I put that idea to Laplanche as a way to really help retail investors. But he said that option is not on the table. Many of the large investors have contracts in place that puts limits on the fractional loan pool of a certain percentage and all these contracts would have to be renegotiated for a $100 limit like this to become a reality. And he wasn’t willing to do that.
Laplanche pointed out that there have been numerous restrictions placed on institutional investors to try and level the playing field somewhat. For example, if a large investor comes to them now and wants to put, say, $20 million on the platform this month they are told they have to wait, possibly for quite some time, before they can invest.
Trying to Balance Institutional and Retail Investors
For this reason institutional investors are complaining about access just like retail investors. He is trying to balance access for both groups at a time when interest in Lending Club is exploding. Some large investors have suggested to Laplanche that he needs to speed up Lending Club’s growth – that 250% annual growth was somehow too slow. He rejected that idea – he is focused on building a sustainable company for the long term and that means fast but manageable growth.
Scott Sanborn pointed out that August saw record inflows from new retail investors so the story is not just about the growth of the large investors. Investor money from retail investors still makes up a significant percentage of the total volume. He said that mechanisms will be put in place very soon (a couple of weeks was the time frame stated) that will start to address some issues around investor demand. I can’t share anything today but Sanborn said Lend Academy readers will be the first to know when these changes start to be implemented.
One the comments Sanborn made is that there are no easy solutions here. And he reiterated what Laplanche said. Institutional investors are complaining just as loudly as retail investors, they are just not doing it on Lend Academy – they do it directly with LC management. Sanborn described a number of changes coming very soon, some of which are long needed and some that will be unexpected.
But if retail investors were looking for news that the playing field is going to tilt back in their favor they will be disappointed. We are not being ignored, but we will not be given any specific advantages over institutional investors. There are some changes coming that will please some people but don’t expect to see any new limitations on large investors.