Lending Club Files to Go Public

Lending Club IPO

Well the time has finally come. It has been more than 20 months since Renaud Laplanche, the CEO and founder of Lending Club, first discussed IPO plans. Earlier today they filed their S-1 registration with the SEC in preparation for the Lending Club IPO.

There have been so many rumors flying around the last week or two about the IPO that I thought it must be imminent. And it turns out that some of the rumors have been true. While the price is not set yet we do know that the IPO is listed for $500 million. The investment banks leading the offering will be Morgan Stanley and Goldman Sachs.

As I write this the news is less than 60 minutes old but there has already been a flurry of articles published about the IPO. On Twitter I have have seen at least a dozen news stories mentioned already. I was interviewed a couple of weeks ago by Ari Levy of CNBC in preparation for their IPO and he published this article this morning. In it he said that his sources are telling him that Lending Club plans to go public before Thanksgiving.

In the New York Times, Michael De La Merced reports that at $500 million the Lending Club IPO will be one of the 10 biggest stock market debuts ever for an internet company. He also said that this $500 million number could well go higher. I will have a round up of the rest of the coverage in my regular Saturday morning news post this weekend.

So What Happens Now?

I have no experience in following a company as they go public so I asked my good friend and Lend Academy partner, Bo Brustkern, to give me his thoughts. He is a former venture capitalist and has been following IPOs for a long time. Here is an explanation of what is happening and what we can expect.

This is a $500 million fundraising event for Lending Club through an IPO (Initial Public Offering), of its Common Stock. Once the company has IPO’d, Lending Club’s Common Stock will be publicly available for purchase by individual retail investors, as traded on the NASDAQ or NYSE. The offering itself is being managed by the investment bank of Morgan Stanley (no surprise there), which appears “on the left” on the front page of the company’s prospectus. The primary co-manager is the investment bank of Goldman Sachs, with support from the investment banks of Stifel, BMO, William Blair and Wells Fargo Securities.

Now Lending Club will proceed into what is known as a quiet period, during which company management is forbidden by the SEC to promote the offering. The quiet period will last from now until up to 25 days after the stock begins trading publicly.

The company’s preliminary prospectus, which is colloquially known as a “red herring,” contains a description of the business, discussion of strategy, presentation of historical financial statements, explanation of recent financial results, management and their backgrounds, and ownership. It is subject to amendment. Lending Club senior management, bankers and attorneys will proceed with a sometimes lengthy Q&A process with the SEC during which the document is clarified, and at the end of which the offering can be made effective.

Lending Club management will later go on a road show, a grueling multi-week, multi-city, and often multi-continent series of in-person meetings with institutional investment managers during which time the company and its investment banking team will present the company to what they hope will be covetous long-term, buy-and-hold investors. At the end of this cycle – scrutiny by the SEC, conducting the road show, etc. – if the IPO window remains open, that is to say the economy shows strength and investors in first-issue securities (i.e., large institutions) are sufficiently interested in purchasing $500 million of Lending Club stock, then the company will execute its public offering. The moment we’ve all been waiting for will arrive. The offering price will be set by the company and its bankers immediately prior to the first trade.

So far, Lending Club management has declined to comment on whether or not there will be an allocation carved out for individual investors. This too is not a huge surprise. Investment bankers tend to hold sway in these discussions, since the inclusion of retail investors can complicate the IPO process. What’s more, allocation decisions are often made at the last minute before the IPO goes effective. We at Lend Academy have always been clear on this point: irrespective of the complications it entails, Lending Club is the kind of company – and Lending Club management are the kind of people – that can make a retail allocation work.

One final note. I haven’t forgotten about the little reader contest I announced back in June. The winners will be determined after Lending Club actually goes public.

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Rob L
Rob L
Aug. 27, 2014 3:40 pm

Can I enter the contest now?

rawraw
rawraw
Aug. 27, 2014 4:51 pm

This is when the real risk comes to LC in my opinion. Hopefully the excellent management we’ve seen thus far doesn’t get derailed by pressures to beat earnings estimates.

Dan B
Dan B
Aug. 27, 2014 7:49 pm
Reply to  Peter Renton

I suspect the vast majority of lenders here couldn’t care less if LC hit their numbers or not if there wasn’t that inherent risk to the LC issued notes & therefore risk to lenders’ money. Some of that risk Rawraw speaks of would of course be sharply decreased if LC were to set up a BRV (like Prosper has),to shield the notes from some potential future negative event. Sadly that option has been floated but so far it has gone nowhere.

Should it not be the duty of the so called “experts” & p2p educator to see that this type of issue is kept on the forefront & to keep reminding LC that this is something that retail investors should also have the right to……………….just like their institutional & hedge fund investors have had for a year now? I would think that if a site or blog is truly here to serve the retail investor then being at the front of such an issue & hammering away at it is really the least they could do. It’s easy to say you’re all for the small retail investor. Actions & results speak louder though.

Dan B
Dan B
Aug. 27, 2014 8:26 pm
Reply to  Peter Renton

Well if that is the problem then I have a simple solution. Do their IPO, gain the blue sky exemption…………..then put the BRV in place for all notes starting from the day they gain the blue sky going forward & covering investors from all 50 states.
Please forward my $500 bill to your buddies at LC.

SarahV
Aug. 28, 2014 2:40 pm
Reply to  Peter Renton

Of course they announce the IPO that will allow people in my state to invest on the retail platform four days before I move to a state that isn’t Folio-only… 🙂

I’m still out of the note game due to general life and work insanity (last 4.5 months = the company that employed me was salvaged out of bankruptcy by my previous employer, half the company got laid off, I was promoted to CEO, and we decided to move operations to New York). But I would love to invest some of my play money in Lending Club stock if it looks to be valued semi-reasonably…

SarahV
SarahV
Aug. 29, 2014 7:17 am
Reply to  Peter Renton

For me it would be strictly a long-term investment with my “play” money. I just got my 401k rolled over to my IRA last week, and redid my portfolio from top to bottom. There’s about 3% set aside for playing in the stock market that I haven’t had time to fully invest yet. I think I will probably buy LC regardless, but the higher the market cap the less $$ I’d put in…

JJ Hendricks
JJ Hendricks
Aug. 28, 2014 8:53 am

Can you ask Bo what the average window is between S-1 filing and IPO? Assuming all goes smoothly.

Data I saw looked like 30-45 days on average, which puts IPO in early to mid October. But I don’t have first hand experience in the industry so I would like to know rough time frame from someone in industry.

Bo Brustkern
Bo Brustkern
Aug. 28, 2014 10:35 am
Reply to  JJ Hendricks

Hi JJ. From my experience, 30-45 calendar days feels about right. Timing for Lending Club’s IPO may be shorter (they’re pros at S-1 filings already), or longer (LC is more complex and regulated than a typical internet co). There’s a good post on Quora about the standard process here. Go on and upvote it here:
https://www.quora.com/How-long-does-it-take-between-a-company-filing-to-IPO-and-the-IPO-itself

JJ Hendricks
JJ Hendricks
Aug. 29, 2014 4:38 pm
Reply to  Bo Brustkern

Thanks for the reply and link to more info. I have been debating back and forth with myself about Lending Club taking more or less time than average for the exact reasons you mentioned.

Will
Aug. 28, 2014 8:58 am

Mr. Money Mustache brought me here. No doubt he helped quicken the road to their IPO as well. Thanks for the succinct update.

Bryce Mason
Aug. 28, 2014 11:40 am

Help me reconcile the two statements that (1) LC is in a quiet period, barred from talking and (2) they go on a road show to convince institutions to buy the stock.

Dan B
Dan B
Aug. 28, 2014 4:33 pm
Reply to  Bryce Mason

Road shows are exactly that…………..”shows”. Any show promoter worth anything knows how to put one together that insures a friendly audience. This explains why some of us don’t get invited to “shows” like the Lendit “shows”. Yes, here it comes……….. everyone is welcome, yada yada yada. But we know the truth. 🙂

Quiet period insures that a free for all doesn’t break out & helps buffer out uncomfortable questions from people that don’t get invited to “shows”.

Bo Brustkern
Bo Brustkern
Aug. 28, 2014 6:07 pm
Reply to  Dan B

Dan B! You’ve always been invited and encouraged to attend LendIt. You know that! You just need to buy your own ticket, just like everyone else. See you in April?

Dan B
Dan B
Aug. 28, 2014 7:50 pm
Reply to  Bo Brustkern

I’m sorry Bo, but I’m kind of old school. Not that I’m in any case interested but to me that is at best an announcement or a notification, & not an invitation. When one “invites”, one doesn’t make reference to money or having guests buy their own tickets. At best, it severely diminishes the invitation aspect. At worst, well let’s not even go there, as I’m pretty sure your response wasn’t intended to offend.

You may think that the “like everyone else” part makes it sound oh so egalitarian, but even if it were to be completely believed…………….it’s a reminder that the event is just a “show”, regardless of the marketing pitch, & its main purpose is to line the pocket of show organizers. Organizers whose desire & concern for depth & quality is such that invitations are extended to literally anyone who is willing to hand money over to buy a ticket. 🙂

Bo Brustkern
Bo Brustkern
Aug. 28, 2014 6:05 pm
Reply to  Bryce Mason

Hi Bryce. Essentially, it’s called a “quiet period” because the company management is restricted from saying anything that doesn’t already appear in the preliminary prospectus. Not only that, but my understanding is that they are actually supposed to physically hand you a copy of the prospectus as they speak to you about the company. Any slide decks they present to institutions will match the information that is in the prospectus. So I’m not really saying “convince institutions to buy the stock” but rather “help institutional investors read the prospectus.”

Second, if one can’t hand the entire audience of CNBC a prospectus while being interviewed by a reporter, one shouldn’t appear on CNBC during this sensitive time. Thus, management stays pretty quiet.

Bryce Mason
Aug. 29, 2014 6:42 am
Reply to  Bo Brustkern

Great reply, thanks!

rawraw
rawraw
Aug. 29, 2014 3:48 pm
Reply to  Bryce Mason

The bankers involved in the process understand what they can/can’t ask generally, so it helps management while they do the road show

Kent
Kent
Aug. 28, 2014 5:53 pm

Any thoughts/predictions on how LC stock will perform over the next 5 years or so? I’m wondering if purchasing their stock would be as sound of an investment as the 11 percent return I’ve earned over the past 5 years as a LC lender.

Bo Brustkern
Bo Brustkern
Aug. 28, 2014 6:08 pm
Reply to  Kent

Kent, I would love to help you with this analysis, but I’m afraid I can’t in this forum.

Bubble-rama
Bubble-rama
Aug. 29, 2014 6:12 am

I am hearing $5-6bn mkt cap?! Hilarious. This should be valued closer to an eTrade or Nasdaq. LC is not a marketplace. I cannot log-on and negotiate a transaction with a unique seller. LC originates, packages and resells consumer credit.

Look – I like the business and I am satisfied investor. But the valuation and spin job on this thing is absurd.

Bo Brustkern
Bo Brustkern
Aug. 29, 2014 8:17 am
Reply to  Peter Renton

I agree Peter. There is a difference between value and price.

rawraw
rawraw
Aug. 29, 2014 3:49 pm
Reply to  Bo Brustkern

In the short term, at least. . .

Bubble-rama
Bubble-rama
Aug. 29, 2014 12:15 pm

Peter / Bo: would/will you buy LC common stock at a $5bn+ equity valuation?

Bo Brustkern
Bo Brustkern
Aug. 29, 2014 12:55 pm
Reply to  Bubble-rama

My situation is probably different from yours, and as such the suitability of such an investment as it pertains to me may not be applicable to you. Sorry, but I have to punt on this question too.

Bubble-rama
Bubble-rama
Aug. 29, 2014 1:32 pm

Bo – do you think $5bn is an attractive entry point for a retail investor? C’mon – have a point of view here.

Dan B
Dan B
Aug. 29, 2014 2:05 pm
Reply to  Bubble-rama

What incentive could he have to provide a strong opinion? He can’t really say no, can he?. He can say yes, but your name here is Bubble-rama. If he says yes he risks being labelled a supporter of the bubble……………. & if he ends up being wrong, there is at least one person here who might be very tempted to make him look like the nether region of a male possum. 🙂

Bo Brustkern
Bo Brustkern
Aug. 30, 2014 1:25 pm
Reply to  Bubble-rama

Bubble-rama: I hear you. I actually haven’t formed an equity opinion on LC yet. If/when I do, the way you are phrasing your questions may get me in hot water if someone views it as investment advice. Rather than trying to rephrase yet again, how about we just take it offline?