Lending Club – 2014 IPO?

The Internet has led to the creation of several alternate business models. One such interesting business model is that of the online lending platform, Lending Club. Lending Club was founded in 2007 by entrepreneur Renaud Laplanche who was annoyed that he was paying 18% interest on his credit card bill and earning just 1% in interest on his savings account. The company was established with the mission of offering an alternative to the traditional banking system to both borrowers and investors. The San Francisco-based company is now among the world’s biggest peer-to-peer lenders. It was also named in The World’s 10 Most Innovative Companies in Finance by Fast Company in 2013 and Forbes’ America’s Most Promising Companies in 2011 and 2012. Long before the buzz word ‘crowd funding’ became trendy, Lending Club started doing exactly that.

Lending Club’s Offerings

Lending Club is essentially an online financial marketplace that brings together borrowers and investors to deliver an alternative method to traditional banking system. It helps both borrowers and investors by offering loans and investment opportunities at better returns. As of last month, they helped issue more than $3 billion in loans and helped investors earn over $300 million in interest payments.

Lending Club allows both borrowers and investors to join the site for free. People interested in borrowing money can sign up and get instant rate quotes on loans that they wish to take. Similarly, investors can join in to build a portfolio that will help them earn more than they would otherwise earn through investments with a similar risk profile.

The company earns revenues by collecting a pre-defined fee from both borrowers and investors. A borrower is charged a one-time loan origination fee that ranges from 1.11%-5.00% of the loan amount. The charges depend on the nature and terms of the loan. The investor pays Lending Club a service fee of 1% on each payment received from the borrowers.

Their business model’s success can be gauged from the fact that two years ago, former U.S. Treasury Secretary Larry Summers joined Lending Club’s Board, thus endorsing its offerings. It is no surprise that they are seeing rapid growth. They are expected to have generated $34 million in revenues in 2012 and were looking to end 2013 with revenues of $100 million. They also turned cash-flow positive for the first time last year.

Lending Club has been venture funded and has received $220 million in funding from investors including Amidzad Partners, Canaan Partners, Norwest Venture Partners, Morgenthaler Ventures, SVB Financial Group, Gold Hill Capital, Foundation Capital, Union Square Ventures, Thomvest Ventures, Kleiner Perkins Caufield & Byers, and Google. Their last round of funding was held in May 2013 when they raised $125 million from Google at a valuation of $1.55 billion. By the end of 2013, their valuation had reached $2.3 billion.

Analysts have been expecting Lending Club to go public for the last couple of years. But the company is yet to take that plunge. Many believe that 2014 may be the year when they finally hit the stock market. It’s good that they have waited, because a $100 million-revenue run rate is a much better threshold at which to be in the public market than $34 million.