Prosper - A New & Elegant Startup

Today I had the luck of stumbling upon a new & utterly elegant startup named Prosper. I was actually looking for an old edition of Prosper Magazine, and instead found this startup. Prosper is a peer-to-peer lending network similar to Ebay in which you can lend and borrow to another person. The loans are unsecured and up to a value of $25,000. I actually had this same idea a few years ago, but never followed through with it for a few reasons. First, I was too busy. Second, I was not familiar with the regulations surrounding lending. Third, I could not find someone with deep experience and passion to take the idea and run with it.

Well, I am happy to know that my idea was worthy of $20 mm in funding from Accel, Benchmark, Fidelity, and the founder of Ebay. In addition to capital, they have a solid founder who was the founder of Eloan. I have to admit that they have a killer combination with someone with deep domain experience in lending, great financial backers, and someone with experience in setting up a marketplace. Their platform looks scarily a lot like Ebay - it says on their webpage that it is patent pending.

At any rate, in the one day that I have found this startup, I have already seen it grow immensely in the number of people who need loans and the number of people who are eager to lend money. The most elegant aspect of this startup is that it solves a simple problem without creating anything. In one hand you have people who need money, in the other hand you have people who can lend it. Bridge these two groups with a web-based marketplace and you have what we call a true "pure play".

So within 10 minutes of finding this site, I Gizmo'ed my sister, someone I knew who would appreciate the greatness of the company. Her brief response - "This is beautiful". Upon us both searching the site for flaws in the business model, we noticed that one of the larger lenders on the site lives on her street in San Francisco. Upon further review, it is actually one of the co-founders! Good thing the founder is actually doing business on his own site.

One of the clever things about the site is how they have incorporated the concept of "social lending" through the component of "peer networking". What I mean is that there is a bit of a "Linked In", "Friendster", and "My Space" type of thing going on where by joining and being accepted into a group, this bolsters your validity and background to other members as a "reputable" borrower and lender. You don't see this kind of thing in Ebay and I am very impressed with the concept.

A few potential flaws with the service is that the loans are unsecured. So if your borrower defaults, then you are screwed and you don't have much recourse because you cannot contact the borrower directly. Prosper contracts with a group of collection agencies to sort it out when there is a default. To prevent lenders from getting screwed too badly, they recommend "diversification" of your lending to the spectrum of people that are graded "A or AA" through "E" to "High Risk". Since the service is in its infancy, it is too early to know whether people will be defaulting a lot.

I can say though that in my brief period of observation, that the borrowers who are willing to pay 15% or more in interest are getting lenders very quickly. My sense is that some of the borrowers are not going to be able to pay off their loans. On the other hand, my sense is that the lenders are pretty sophisticated savers. They are  looking for better rates and there are several references to "ING Orange" accounts in their posts. For those of you who don't know, "ING Orange" is notorious for providing high interest rates for savings accounts.

Propser has some serious potential to rock the world of lending and I would rate their chance of success as eminent. I am kicking myself for not following up with this simple idea!

Comments

[Kem]

If you think Prosper is great, you should also check out Zopa (www.zopa.com) too. It's a much safer platform for lenders as Zopa does diligence on borrowers so lenders are NOT exposed to the risks of losing capital like Prosper borrowers are. Zopa was the first to enter the market with a p2p financial services business model, and they took the approach of providing more of a mutual fund (risk diversification) platform for investors. The company (backed by Benchmark as well) launched in the UK in March 2005. They'll be coming to the US shortly!! They have NO DEFAULT!! Can you believe it!

[Anshu Sharma]

Great post.I am personally very impressed by the intersection of Web 2.0 ideas and a true innovation in solving a real-world business problem. (I have a detailed commentary on my blog, click on my name above.)

And yes you are right that even though the idea is simple it is hard to execute except for someone with a rich network of people with experience in banking/lending industry. The team seems to have that and they will prosper!!

[Mayan1]

A new innovative group on Prosper.com called "Two Millionaires cover High Risk Loans, Restore Credit" is helping ordinary people prosper by providing a way for them to get a series of small loans at interest rates below 30% to move their credit grades from HR high risk to B or better.

In less than a month this unique group attracted 200 members, placed 10 loans, and had 50 active listings.

Two Millionaires is helping high risk borrowers who can't attract lenders even in the socially exciting Prosper.com people to people market. The goal of the Two Millionaires founders is to help sincere high risk members get to the point where they qualify as Prosper.com lenders and group leaders themselves.

Two Millionaires attracts lenders by offering a large selection of quality listings at high interest rates, and an opportunity to help others.

https://www.prosper.com/public/groups/group_home.aspx?group_short_name=Mayans2