PureVC

Prosper Files an S-1

Prosper has filed an S-1. I first posted about this interesting peer to peer lending network back in 2006. At the time I thought of it as a real pure play - a marketplace that utilized the ubiquity of the internet to help people connect and loan money to each other. Over the years I've been watching the company and while it has grown to over 830,000 members and has done over $178,000,000 in loan volume, it has not reached its potential.

Now I don't know what the actual financials of the company are. But their S-1 states that they charge 3% per loan and up to 1% per year in loan servicing fees. Based on their stated $178 mm in loan volume, that would be $5.3 mm in revenue on loan volume plus another $5.3 mm on loan servicing for the three years they have been in business. That's good revenue for a startup but just not enough for a company with this potential. I guess what I am trying to say is that the business model of Prosper requires a high volume of loans. Given that deliquency rates have undoubtedly risen from the current financial climate it is no wonder that Prosper has tweaked their business model.

So what would you do if you were in their situation and needed to ramp up loan volume? Well they have gone ahead and created a marketplace for people to trade loans. Thus their S-1 is not an IPO of the company. Rather it is a listing of their notes that will allow them to be traded on their marketplace. Essentially they are securitizing the loans on the marketplace. Thus not only will they make money on loans but also on their trading. The more the notes trade hands the more they make in fees. It's a very smart way to ramp volume.

Interestingly, securitization of loans is one of the very reasons that we are in the whole financial crisis in the first place. Bankers securitized subprime loans and sold them to investors for fat profits. When those notes started to go sour, things went bad. So it will be very interesting to see how the note trading proceeds on Prosper.

HowCast Launches Clever Advertising Model

I will be the first to admit that I am not a big fan of business models that rely on advertising. However, occasionally I run across a clever business model. AlwaysOn has a post on some Ex-Googlers and their new company HowCast.com. Their goal is to create a network of "How-To" videos online. Their content is provided by their own studio as well as other directors and freelancers. They are trying to revolutionize the concept of "How To" videos.

What I love about this business model is that they have created a very easy and desirable way for advertisers to jump on board. They have divided up their videos into tons of categories which makes it easy for advertisers to purchase ads. For example, JetBlue is their first big advertiser that shows up on all videos related to travel.

This model is in contrast to advertising clickthrough model that so many startups rely on yet never really materializes.

In addition to having a great business model, their site actually fills a huge void. Most people "search"for something. How many times have you searched for instructions or tips on how to do something? These guys have taken it a step further by actually providing clever instructional videos. Thus they have created a search destination as well as a "product".

I've never met the founders, but they are obviously very smart guys which I suspect will have lots of success with this model.

VMWare

I haven't posted on any S-1s or IPOs lately, but I have been tracking the EMC spinoff, VMWare. Since its IPO about 2 months ago, the stock has been on a beeline toward the sky, trading at $101 today from an offering of around $30. A few colleagues of mine are working at the company and have been rewarded nicely in their stock options, making a lot of instant millionaires. This company's valuation now at almost $39 billion is higher than a lot of well-known tech companies. This is all very Google-esque and seems to have come out of nowhere.

For those of you who don't know, the company specializes in Virtualization which allows a computer to allocate hardware capacity and allow multiple operating systems to operate on one computer. When many computers are connected in this fashion you get a "Virtual" Smart Infastructure that can result in signficant cost savings.

Virtualization is not a new thing as there have been many startups that flamed out because they were too ahead of their time. But VMWare seems to be popularizing it and commoditizing it. As you know, I typically don't buy IPOs and am not an active stock trader, but VMW seems to be blowing up. I'm not sure their earnings will support these types of valuations, but we all know that while being a trailblazer and first mover is not always the best thing in the private markets, it definitely is usually handsomely rewarded in the public markets.

Lijit is Legit

I recently added Lijit's widget to this blog and I've just started receiving the first few weekly emails showing stats for the site. I must admit, I'm impressed. I guess I didn't understand the real power behind search until now, particularly as it applies to content. Brad Feld has written a bunch about Lijit's service as I think it is a portfolio company of his.

What is cool about the service is the analytics that they provide by email which show the number of searches per day, the top 25 searches on your site by number, the top searches by users that came up with zero results, and the top incoming links. This is the type of data that search engines like Google and Yahoo see all the time and use to their advantage. From content perspective, this is tremendous because it tells me what readers are looking for when they come to this blog.

For instance, the top search last week that came up with zero results were the words "Investment Thesis". Because I want to satisfy those who spend time reading this blog, I'm going to post on this topic. If you are one of my readers and are too shy to drop me a note, feel free to use the Lijit search tool to find what you want. I'll see the results on a weekly basis and try to fill in content gaps.

MyBlogLog Acquired by Yahoo!

As reported today by The Deal (subscription required), Yahoo! announced that is has acquired MyBlogLog. If you don't know about MyBlogLog, it is this clever idea to create communities around blogs. It has changed the landscape of blogging from a one way street to more of a community where you actually can get a feel for who is in your audience and what links they are moving on to from your page. I currently use the free service and haven't had the time to fully investigate all the perks of the paid service, but it is obvious from the different faces that I see on this blog that there is some serious viral marketing at play here. I don't even consider it word of mouth - bloggers visit each others sites and see the little face widgets and decide to try it on their own. A few weeks later and there are thousands of users using the service - simply amazing!

While I personally do not measure that much of what is going on around this blog, I do enjoy seeing different faces appear on the blog. Occasionally, I will click on someone's photo and may glean a bit of information about the person. What I do find useful is the tabulating of which links on this blog are the most popular. This in combination with stats I can take from Typepad's traffic log, tell me that a lot of people who read this blog are interested in Hedge Funds. The last time I checked, every day there are about 50 newcomers who find this blog via a Google search on Hedge Funds. I am quite amazed at the interest in Hedge Funds - are these readers interested because they work  in the industry, are looking to find good managers, or are simply Hedge Fund groupies? I don't have the time to take necessary steps to find out but if you are a reader of this blog, feel free to drop me a line anytime. If you want me to write about something in particular, let me know.

Anyways, the whisper number on this transaction is $10 million. Not bad for a company launched in July 2005. As the article points out, Yahoo! is clearly trying to get ahead of the curve by acquiring companies early, like they did with Flickr. It also highlights the fact that many startups are looking for M & A opportunities as they are searching for their next round of funding. What I might add is that I hear some of the founders are running several companies at once - so this example shows that "Parallel Entrepreneurs" that I previously posted about can achieve success.

Congratulations to Eric and his crew for their nice exit!

Fleck

There is a company called Fleck that is launching tomorrow, November 16th in New York City. I was invited to be involved in the exclusive beta of Fleck earlier this week. If you don't know about Fleck, you surely will soon. All I can say at this point is that I am impressed with the beta. It is very cool and has the potential to add another level of interactivity to the web. I am not an investor in Fleck but wish I were. These guys are smart and obviously know the web.

I have never met the founder of Fleck personally, but he is an avid reader of this blog and some time ago we began intermittently corresponding. He invited me to attend a conference in Amsterdam, but I was unable to commit. I was never really able to get many details about Fleck from him until he sent me the invitation.

From what I can tell, the founders are definitely in touch with the web. In the coordination of their press launch, they have given instructions to bloggers of what can and cannot be shared in blogs until the official launch. I am impressed by this level of foresight and have the feeling that this is going to be yet again another service the quickly becomes popularized by viral marketing and by the masses of web users.

Good luck to Boris and Fleck! I will definitely post more details on the company as it becomes available to the general public.