The Wall Street Journal is reporting today on a potential $5 billion investment into Prosper loans. This deal has not closed yet but if it does close it would be largest investment commitment in the history of the marketplace lending industry.
I reached out to Prosper but unfortunately they would not comment on this story. It is understandable given the fact that this deal has not closed yet and according to the WSJ that milestone could still be weeks away.
So, let’s take a look at what we do know, at least according to the WSJ. The firms in this deal, Soros Fund Management, Fortress Investment Group, Third Point and Jefferies are some of the biggest names and most sophisticated firms on Wall Street. We know the deal is for $5 billion and we can assume it includes leverage given that the “potential buyers are also talking to banks about borrowing money to support their loan purchases.” We also know that the loans will be bought at face value and the investors will receive an equity kicker as they buy loans on the Prosper platform.
The slowdown in marketplace lending this year has been as dramatic as it was unexpected. A deal like this is a real game changer. It helps everybody. It certainly helps Prosper, but I would argue it helps Lending Club and every other platform as well. Suddenly, big deals that were becoming the norm last year are back on the table. Now, investors who have been on the fence may start to develop more trust and be willing to pull the trigger on new deals too.
There have been so many negative stories in the press over the last few months, some even predicting the death of our industry. Assuming this deal closes I expect the narrative to begin to change. This industry is not going away but I also don’t think we will ever go back to the crazy fast growth of previous years. We have learned our lessons and the key to moving forward is sustainable growth along with strong compliance.
There was another little nugget of news from the WSJ article that was overshadowed by the big announcement. The fact that another large bank, BBVA Compass, is now buying loans on the Prosper platform. That was news to me and certainly another positive sign for Prosper and one that demonstrates the level of trust in their organization.
A few years from now there is no doubt in my mind that we will look back on 2016 as a challenging year. We have taken several steps backward to be sure but if this deal gets done we may also look back and say that was the turning point. That was when we started to get back on track.
I never doubted the industry would survive and thrive once again. We have a long way to go but the biggest deal ever would be a heck of a first step back.