I am in San Francisco this week meeting with the management of Prosper and Lending Club. The main reason for this trip, though, is to meet the new management team at Prosper. They came on board three weeks ago and I wanted to get a feeling for how everything was going.
I sat down for a lunch meeting in the Prosper offices yesterday with new CEO Steve Vermut. Below is an edited transcript of our interview.
Q. When did you first get interested in the peer to peer space?
A. It was around 18 months ago when my business partner, Ron Suber, brought it to my attention. The more I looked at it the more I liked it. Here is an asset class with high yield and consistent returns that is non-correlated with other investments. I felt that it was such a unique proposition. I have been investing in the p2p space since then.
Q. You are now three weeks into your role as Prosper CEO. What changes have been made so far?
A. We have really tried to hit the ground running. I have a whole list of changes that have been implemented or are about to be.
- We created an operations group that will now reconcile all activity every single day instead of monthly. This will reduce errors as well as the time taken to produce monthly statements.
- Extended our call center hours from 8am – 5pm Pacific time to 6am – 6pm Pacific time.
- There is a small customer service team now working on weekends so emails will be responded to in a much more timely manner.
- Overhauling the way collections is done with an emphasis on being more aggressive.
- We have 71 employees right now and 30 of them are in IT. We are going to continue to expand our capacity in this area.
- We are opening an office in New York City for institutional sales and we will also be hiring experienced IT professionals from the financial services industry for that office.
- We are about to release a new version of the API that will have over 500 data points on every borrower including FICO score.
- We are rewriting Automated Quick Invest to make it run faster.
- We are evolving the credit model and will be eliminating the highest risk borrowers from the platform.
- There have also been a large number of internal changes such as realigning departments that will lead to greater efficiencies as we grow.
Q. Well you certainly have had a busy three weeks. Let’s talk about collections for a second. Investors want more done in that area – what changes are you planning?
A. Our Chief Risk Officer, Josh Tonderys will now be in charge of collections, He has a great deal of experience in this area from his previous job at Barclaycard. We are going to be more aggressive now with one person solely dedicated to early collections. We will be identifying those borrowers who have the ability to pay and will pursue them more aggressively. We are also considering adding more transparency to the process for investors.
Q. With your extensive background with institutional investors there is concern among retail investors that they are going to be ignored. What are you doing for the smaller investor?
A. Retail investors will start to see some real changes soon. The website is receiving an overhaul where there will be added functionality for sorting and querying the available loans. The site will be more flexible and there will be fewer clicks needed to invest in a loan. At the same time, as I said before, Automated Quick Invest is being rewritten so that it will run much faster than before.
Q. The fourth quarter of 2012 was not kind to Prosper with declining loan volume. Can we expect to see that reversed any time soon? Can you share any projections?
A. While I can’t provide any projections let me say this. The response we are getting from lenders is very encouraging. There is huge demand waiting to come on to the platform and as we ramp up the supply of borrowers I expect our growth to be rapid.
Q. Are you planning on creating an LC Advisors-type operation for your institutional investors?
A. No. There will be no Prosper subsidiary similar to Lending Club’s LC Advisors. We will not compete with our lender clients.
Q. Do you expect to be able to take Prosper through to being cash flow positive with the current cash you have or can we expect additional funding rounds?
A. The plan is to take the existing money from our recent funding round, invest it wisely in the business and get to cash flow positive with this money. That doesn’t mean there will not be another round but I don’t expect we will need it.
Q. I know you invested your own money in this latest funding round. So what is your exit strategy?
I am three weeks in to my new role at Prosper so I am focused on the entry strategy. It is way too early to talk about an exit.
Q. Any parting words for Prosper investors?
A. I want to stress that Prosper has a focused and energized management team that is making decisions that are driven by our investors and borrowers. We are going to become a more efficient organization that can handle rapid growth. At the same time I want us remain nimble so we can make quick decisions and implement them rapidly. There will be many more changes in the coming weeks and months that I have not discussed today.
Editor’s note: I chatted with both Steve Vermut and Ron Suber, Head of Global Institutional Sales, for a couple of hours yesterday. While it is too early to tell how they are really doing it was clear to me that both men had a passion for this business and were intent on shaking things up at Prosper.
As I mentioned in my post three weeks ago about the new management team they are executing on their 100-day plan. While it is easy to create a 100-day plan it is another thing to implement it into an existing corporate culture. But in my time at the Prosper offices yesterday there was an energy and excitement that was not present on my previous visits. It will be interesting to see if this energy manifests itself into higher loan volume and a path to profitability. Time will tell but I am not betting against them.