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New Investment From Google Values Lending Club at $1.55 Billion

by Peter Renton on May 1, 2013

Google invests in Lending Club

First, let me say this is not an April Fools joke. This announcement is legitimate news. Lending Club has just announced that Google is the lead investor in a $125 million secondary round that also includes existing investor Foundation Capital.

Being a secondary round means that none of the $125 million is going into Lending Club’s coffers. Several existing investors have sold off a small portion of their shares to Google and Foundation Capital although I have been told that nobody sold more than 20% of their shares.

I chatted with Lending Club CEO, Renaud Laplanche, earlier today about this investment by Google. The first thing I asked him about was Lending Club’s new valuation. While this is not part of the official press release he did share with me that this secondary round valued Lending Club at $1.55 billion.

That is a very impressive number. The last funding round at Lending Club was 11 months ago when Kleiner Perkins made a $15 million equity investment that valued the company at $540 million. The current valuation is roughly triple that number. No doubt some of the early VC’s have done very well offloading just a small portion of their Lending Club shares.

Google Approached Lending Club

I was curious about how the Google deal came about – did Lending Club go to Google or vice versa. “Google approached us because they were intrigued by the kind of disruption that Lending Club is doing in the banking industry,” said Laplanche. “In some ways it is similar to what Google has done to disrupt advertising – making it more efficient, more transparent and more consumer friendly.”

Google wanted to be involved but Lending Club didn’t really need to raise additional capital; they are generating cash every month and have a strong balance sheet. So Laplanche went to Lending Club’s existing investors and asked if they would be willing to sell some of their shares. Several of them agreed.

Google will have an observer seat on Lending Club’s board (there are no available board seats) where they will be represented by David Lawee, who until recently was head of corporate development at Google but who now oversees their late stage investment group according to this article from Reuters. But the collaboration between the two companies will go far beyond that.

“We are going to be working together with Google on a number of different ideas focused primarily on the borrower side of the business,” said Laplanche. When I tried to press him further on details he was coy only saying that it was “something more ambitious than just borrower acquisitions.” What that means exactly is hard to say. Google has their hands in so many areas including the new Google Wallet initiative that the options are endless. It will be very interesting to see what develops here.

Moving Steadily Towards the Mainstream

Google is one of the highest profile and most valuable companies on earth. The fact that one of the world’s leading companies pursued an investment in Lending Club is big news for p2p lending. It further cements Lending Club as the world leader in this space and is another step towards the mainstream for p2p lending.

[Update: The New York Times and Techcrunch both have excellent articles also covering this news.]

What do you think? I am interested to hear your reaction as well as any ideas that you think might come from this new collaboration.

{ 31 comments… read them below or add one }

B. Mason May 1, 2013 at 10:15 pm

This is great news, in my opinion. The VCs get an immediate return, and now we have one more mega-firm backing LC. LC is going all the way. At the very least, LC will get a discount on their adsense! In all seriousness, I think the collaboration could help LC solve a fundamental problem of how best to attract more borrowers.

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Peter Renton May 2, 2013 at 6:17 am

Indeed Bryce. I think there will be some very interesting developments on the borrower side of the business in the next 12 months. It will fun to watch.

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Rob G May 1, 2013 at 11:39 pm

Impressive. Lending Club has steadily led the way in innovating and disrupting the inefficient traditional banking system. Having Google in the mix not only confirms the disruptive nature of its P2P lending model, but also solidifies an unshakeable foundation of investors to take it mainstream.

Now my question is, will browsing and investing in P2P loans be standard in the first version of Google Glasses?

;-)

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Peter Renton May 2, 2013 at 6:22 am

Hi Rob, It has been a long time. Great to hear from you again. Couldn’t agree more about the impact that Google will have on p2p lending. But I’m not sure if integration with Google Glasses is high on the priority list… :-)

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Rob G May 2, 2013 at 11:26 am

Seriously, investing through Google Glasses… big hairy audacious goal if I was still heading product strategy there. Just saying.

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Dan B May 2, 2013 at 8:35 am

Is this “the” Rob G***** ? As in the former head of the Dept of Propaganda at Lending Club? Just kidding Rob :)

It’s nice to hear from you. Yes, I’m still here stirring up trouble. :)

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Rob G May 2, 2013 at 11:28 am

THE Rob Garcia, yes Dan. I can see you’re still in the mix causing trouble. Good to see you haven’t lost your edge. Cheers!

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Dan B May 2, 2013 at 9:12 pm

I don’t really “cause trouble”, Rob. Trouble, or the lack thereof, exists independently of yours truly. In the vast majority of cases, I certainly don’t “create” trouble for the sake of it.
All I do is point it out or highlight trouble & & potential trouble……………..which is a habit that some people may at times find to be troubling, since it may be inconvenient or unpleasant vis a vis their realities, agendas, or their employment etc. :)

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Glenn May 2, 2013 at 4:21 am

This is amazing news Peter!
Not just the size of the transaction and that this values LC at $1.55 Bn, but more on what this collaboration will mean for LC and social lending moving forward.

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Peter Renton May 2, 2013 at 6:24 am

Glenn, The surprising thing to me is not the valuation – it is about the number that I expected. But to have an innovative company like Google working with you, that could be truly groundbreaking. Exciting times for p2p lending.

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Fred May 2, 2013 at 6:31 am

Congratulations LC!

Internet giant, former Morgan Stanley CEO, former Treasury Secretary ….

IPO is next.

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Jason May 2, 2013 at 7:26 am

It will be really interesting to see how these two data-oriented firms collaborate. You have ZestFinance and UpStart as two former Google teams that left to create lending businesses. Now Google is getting into the game. Traditional consumer lending is changing fast and LendingClub seems well positioned to be the gateway and it is built on data. The implications will extend from personal loans to student loans, auto loans, home improvement loans, and even small business loans. This is going to be really interesting.

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writing2reality May 2, 2013 at 7:51 am

Fantastic! This is really an awesome step for peer-to-peer lending as a whole, in addition to those at Lending Club. Google brings a brand recognition and legitimacy to “bucking” traditional banking.

As Fred said, IPO, here we come…

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SarahV May 2, 2013 at 9:44 am

Wow. I’m glad you wrote that first sentence because my first thought was that it was some kind of prank or joke! I think this is great news.

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Mr. 1500 May 2, 2013 at 11:20 am

Wow, this is cool. I wish I could invest in LendingClub. I believe in their model very strongly. LendingClub will be a household name in 5 years.

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Rob L May 2, 2013 at 12:48 pm

Did Google make LC an offer they couldn’t refuse? Sure; in more ways than one. The good news is that Google wants to invest in us; the bad news is that you have to sell them some of your shares. Can’t say no (not that you would want to). It’s more than worth parting with some shares to have Google aboard, but I now have more reason than ever to hold onto them. Share the “pain” of who has to sell? Guess we’ll find out who sold what in the next 10K filing. Before this I thought Google was more likely an LC threat than a potential ally. Read the LC prospectus. Great news for LC and its community! Lots of synergy in this deal. It will be fun to watch how it all plays out. So many possibilities…

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Julie Hendrix May 2, 2013 at 4:46 pm

Wow. Wow. Wow. Amazing news.

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seeya May 2, 2013 at 5:17 pm

I’m still waiting for any news about Prosper and Google also teaming up.

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Peter Renton May 2, 2013 at 8:34 pm

I don’t think that is going to happen now. But it will be interesting to see if any of Google’s rivals approach Prosper. I will certainly be keeping a close eye on this.

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Fred May 2, 2013 at 9:40 pm

If P2P industry in the US is to flourish, it needs a good dose of competition.

Google-LC pair may be perfect for each other, but may not be best for consumers. It is very easy to become a monopoly (in the long run).

So, I would not mind seeing Prosper getting a boost from Yahoo!, Microsoft, Apple, Amazon, etc.

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Mike Craig May 2, 2013 at 7:15 pm

Let the sun shine in! Great news! Who knows, maybe even Pennsylvania will take notice and join the new 21st Century world of finance.Hope springs eternal. Bring on the IPO.

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Peter Renton May 2, 2013 at 8:36 pm

Mike, It is a bit of a joke these days that big states like PA, OH and NJ are preventing their investors in taking advantage of this opportunity. As you say, bring on the IPO – that should shake things up.

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Dan B May 2, 2013 at 9:03 pm

Wow, this is tremendously great news……………..for shareholders, backers, principals, employees & others who hold LC shares, & certainly great news if you happen to be one of the investors who cashes out a percentage of their stake for a large chunk of change. Undoubtedly, this is also great news for someone promoting/organizing a certain conference in NYC next month. :)

But for those of us who aren’t part of the above categories?? I don’t know. Call me crazy, but I’m having trouble getting all giddy about news whereby a company I don’t have a financial interest in, is making an investment in another company I don’t have a financial interest in.

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Peter Renton May 3, 2013 at 12:22 pm

Dan, I think what it positive about this news for all p2p investors is that this announcement brings this idea of p2p lending to the forefront of people’s minds. Yesterday, more people were talking about Lending Club than at any other time – ever. On Twitter my rough estimate was about 5,000 mentions (as compared to 10-15 on a typical day). Every major business and tech publication covered this story so many millions of people would have seen it. And I had the most visitors to my blog than any other day in my history :-).

Bringing p2p lending to more mainstream awareness is good for p2p investors because it makes the future success of the platforms that much more likely. It lessens the risk for all of us without driving down yields. That to me is good news.

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Dan B May 3, 2013 at 3:39 pm

Perhaps, & I’m happy for you in that all this brings you & your blog more visibility, success etc……………..However, if I were in a more argumentative mood, I could easily argue that pretty much everything else you said could be viewed as a “neutral” or “negative” effect for us existing individual investors,, especially at a time when some of us (myself not included) are complaining about loan availability. But like I said, I am not feeling the desire to go down that road today. But even setting all that aside, I see no reason for anyone without a direct connection to Google or LC to be that thrilled over any of this.

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Roy S. May 3, 2013 at 1:50 pm

Am I the only one who does NOT like this? To Google, we are all data points to be exploited for profit–profit is all well and good, but there will soon be no more privacy. Now, if you have a Gmail accout, use Google as your search engine, use Google docs, utilize the Google+ social network (for the 2 or 3 people who actually use it), use Google checkout/wallet, etc., have an android phone and access your banking or financial information, and then go to apply for a loan from LC, Google will have A LOT of information on you (lenders and borrowers). I’m sorry, but I’m just not a fan. Yes, there can be benefits to this, especially for the lenders (with, hopefully, better credit analysis and underwriting leading to better returns and fewer defaults). But this is headed in a direction I do not like…

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Dan B May 3, 2013 at 3:51 pm

Roy…………It sure does sound like you are alone on this one. But I will stand with you on this, as I don’t care for many of the things you’ve mentioned, & as my comments above indicate, I’m not in the “happy” camp on this either. Without getting into a protracted discussion on this, let me just say that I think that most people looking at privacy concerns in general fall into the “it’s already fully compromised, so why talk about it” camp, the “it’s inevitable that it will soon be fully compromised, & there’s nothing anyone can do” camp or the camp you are in. So it’s not surprising that no one else has brought up your concerns.

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Peter Renton May 3, 2013 at 4:50 pm

Roy, There are certainly privacy issues here and many people are very concerned about companies like Google violating their privacy. I am not one of them. Now, I don’t share sensitive information but I am more than happy for Google to track my movements because I think it provides for a better user experience. I understand your perspective and I know there are many people who agree with you.

I am very excited about the rich dataset that a Google/LC combo will have in making better underwriting decisions. Now, people should be able to opt-out of this data gathering and there are ways to do that today. But I think borrowers who make their full data readily available may well be rewarded with lower rates. That is a trade-off that people may have to make.

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Loren Picard May 13, 2013 at 11:02 am

My thoughts may be a little late to the game, but maybe LendingClub decided to get shares in Google’s hands not for what they see as a positive future, but for what may be storm clouds on the horizon. Maybe there will be no IPO (just speculation). With a valuation of 75% of it’s expected 2013 origination volume, I would think twice as an investment banker to take LC on the road (remember Facebook IPO?…ouch!). Also, they make money on origination fees and servicing fees. There are a lot of businesses that make the same type of revenues and don’t get astronomical valuations. Given that the best known secret in the industry is that there are not enough borrowers to meet investor demand (a sign that a market is out of whack), just maybe LC sees itself selling out to Google or some other goliath down the road. You can already picture the strategic purchaser’s statement: “LC brings a depth of knowledge, range of technology, and….etc. etc. etc…which is unparalleled in the industry.” Then 3 calendar quarters later when nobody is looking the purchaser writes off a massive amount of goodwill. I don’t think there is anything wrong with LC management hedging their bets, but everybody else should be prepared for scenarios they never anticipated.

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Peter Renton May 13, 2013 at 2:20 pm

Hi Loren, Always good to hear your comments. That is an interesting take on the news and not one I have heard from anyone else. I completely agree that the valuation of LC is extraordinarily high given their revenue and originations and there are certainly imbalances in the borrower/investor mix right now. But I would be surprised if LC does not do an IPO next year. The CEO clearly thinks it is going to happen because he talks about it in almost every interview now. While your scenario is indeed possible, I don’t think it is the most likely outcome. Now, I doubt the IPO will be a walk in the park and it could well turn out like Facebook but I think it will happen in the second half of 2014.

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Loren Picard May 14, 2013 at 10:27 am

Thank you Peter. My purpose of proposing an alternative scenario is not that I am making a prediction, just that as they say “there is a lot of space between lip and cup” from now until 2014. And I truly believe LC thinks they are going the IPO route. But, so many events can happen over the next year that I’d be surprised if things go as smoothly as LC’s management is discussing in public. Prosper is an unknown quantity. They are a completely different company and I believe not one to just sit and respond to the environment.

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