Yesterday was the largest day in peer to peer lending history. Lending Club became the first company to go public and trade on the stock market, bringing a tremendous degree of publicity to this previously niche sector of finance. The entire New York Stock Exchange was dedicated to heralding this day, with the stock surging 60% on its opening.
Where We’ve Come From
In times like this, it is amazing to look back on how much this industry has grown. For many years peer to peer lending has been relegated to niche investing. There were many moments over this company’s history where the operation was thrown into doubt. But hard work with a patient mindset resulted in years of consistent growth, as seen in the chart below:
The industry leader took five years to issue its first billion dollars in loans. Today it is issuing that amount every three months, a rate that continues to increase each quarter.
In June, CEO Laplanche outlined reasons for going public
Back in June, Laplanche sat down with LendingMemo and outlined the three main reasons why companies seek to have an IPO. The first is to raise money, though Laplanche stated this is of little interest to Lending Club considering they are already profitable. The second is to provide an exit for early shareholders, but Lending Club had already provided that so this reason was not really of interest.
The third reason companies go public is what Laplanche stated as Lending Club’s motivator, which is to help people discover his company:
“We are considering an IPO […] as an opportunity to raise awareness for the company and better establish the brand. A successful IPO can be a significant awareness-creation event. Millions of people who haven’t heard of us before could discover Lending Club if we would go public.”
In late August, Lending Club filed for IPO
August 27th was an exciting one for all of us as hundreds of major news outlets sprang to cover the event (read: Lending Club Files for IPO).
Included in this S-1 was a statement from Laplanche about how Lending Club fits into larger American narrative of the newly emerging sharing economy:
“I believe the sharing economy has now given birth to a socially desirable way of life that is gaining ground in every aspect of our lives.”
Essentially, Laplanche is referencing to how the internet is allowing people to connect directly to each other in all sorts of economic ways. Uber connects drivers who have free time with riders who need to be somewhere. Airbnb connects unused apartments with people on vacation. Taxis and hotels are reframed as expensive and become marginalized by this trend, since they operate even when nobody is using them.
Lending Club sees themselves as the next fixture of this sharing economy.
The S-1 states that Lending Club sees themselves as the next fixture of this sharing economy. Big banks operate through thousands of branches nationwide, branches that remain open throughout the day even if nobody is visiting them. But peer to peer lending websites have no branches, vaults, or tellers. Characteristic of the sharing economy, they just connect borrowers to lenders, so the costs are much lower.
Where We Are Today: Largest Tech IPO of the Year
All of this came to a head yesterday when Lending Club officially opened its stock for trading on the New York Stock Exchange. The entire building, inside and out, was blanketed in Lending Club’s characteristic red, somewhat giving the place a Christmas-morning feeling that worked really well.
Through its $15 per share price for the IPO, Lending Club raised around $860 million for future operations. When the stock opened, this price suddenly increased to almost $25 per share, valuing the company at around $9 billion. This is an incredible valuation, and puts Lending Club on par with many major banks as pointed out by Heather Somerville of the San Jose Mercury News:
“By the close of Wall Street trading Thursday, Lending Club’s market cap nearly matched the value of Comerica and CIT Group, and surpassed the value of the remaining 820 or so U.S. banks.”
I had the privilege of attending the IPO in person. Early in the morning a handful of Lending Club’s biggest investors like John Mack gave rousing speeches about the quality of this company. Eventually we were all ushered onto the trading floor of the NYSE, and at 9:30am Laplanche rang the opening bell as employees, investors, and press cheered. It was an incredible day.
Interview With CEO Renaud Laplanche
I had the chance to ask Laplanche a few short questions myself that day. The transcript of which is below:
Here at the New York Stock Exchange, the entire room is colored in red. Everywhere I look is the Lending Club logo. Earlier on I saw you ring the opening bell. Can you describe what happened today?
Laplanche: Today Lending Club became a publicly traded company under the ticker symbol LC. What happened was equity investors gave a vote of confidence to the opportunity that Lending Club has in front of it. One of the things we’re proudest of is how many of our platform investors were able to participate.
You have spoken before of your reason for wanting to go public, that being the national awareness that an IPO could bring to the work your company is doing. Do you feel the IPO is helping you succeed at this goal?
Laplanche: Yes. The IPO provides many things – capital for flexibility in growth, awareness and exposure, and credibility to continue building a great company.
What did you enjoy about the process of going public? What was a difficulty?
Laplanche: What I enjoyed was meeting with a new set of investors and hearing how aligned they were with our vision. Nothing was too difficult in the process, but 60 meetings in multiple cities in 10 days was certainly tiring.
In 2007 Lending Club launched as a Facebook application and issued just $5 million in loans all year. Today it’s issuing more than double that amount per day. What do you feel is responsible for this success?
Laplanche: We have a great team of people who have been working hard to execute for our customers, we have an amazing product that’s delivering a great experience as well as tangible value to our customers, and we have a vibrant ecosystem that includes people like you.
What Happens Next: Three Items to Watch
#1. What will Lending Club do with $860 million dollars?
This is a massive influx of cash for the San-Francisco based company. What they choose to do with this money will be fascinating. They could use it to purchase additional companies, like they did with Springstone in April. They could do an extensive national marketing campaign, which would go miles in helping spread national awareness of their brand. Personally, I hope they purchase a Superbowl ad. Really, the sky is the limit. This is more than double the $392 million that Lending Club has raised in the entire history of their company (Crunchbase).
#2. When will Lending Club open in all 50 states?
One item that LendingMemo has paid particular focus to is how the IPO could open Lending Club up to retail investors in all 50 states nationwide. For years, Lending Club has only had access to the 27 states that gave them regulatory oversight.
But an IPO means they could seek a Blue Sky exemption and enter into all fifty states. Lending Club’s Scott Sanborn estimates this process will take three to six months (Somerville). This is great news for retail investors nationwide, as new sectors of the country will finally be able to invest at Lending Club, including huge states like Texas and Ohio.
#3. How will this industry change? How will Lending Club adapt?
How will an IPO on Wall Street affect the nascent peer to peer lending industry? How does national attention change an industry that has, for the majority of its years, only existed as a niche way to invest and borrow? How does this day shape the broader lending industry (Orchard), as dozens of online lenders nationwide seek to imitate Lending Club’s success?
Further, how will Lending Club change as they now have shareholders to answer to, as they are under newly increased pressure each quarter to grow in their success? All of these answers are currently unknown, but the coming twelve months should help bring some clarity.
December 11, 2014: A Great Day for Peer to Peer Lending
More than pushing for answers to unknowns, today is really about one company — Lending Club. Today is about celebration. Despite launching in just 2007, today it took center stage in our nation’s financial center with great fanfare. As the clocked ticked to 9:30am and Laplanche rang the opening bell, handshakes were freely given, congratulations were shared, and cheers emanated from every corner of the room.
After the activities of the day were finished and I stepped out into the chilled air outdoors, I was again greeted by the huge Lending Club banner that covered the front of the exchange. Who would have guessed when this company began that its colors would someday blanket our nation’s financial district? What a journey this has become.
— NYSE (@nyse) December 11, 2014
As I watched, I noticed that portraits of people had filled the different lighted squares of the Lending Club logo outside, and I realized that the winners here today were much more numerous than the shareholders of this newly public stock. Thousands upon thousands of people were going to consolidate their debts at lower rates, or earn a great return issuing the loans that make that consolidation possible. In that way, Lending Club’s IPO yesterday was a victory for us all.