Prosper sucks so bad in almost every way, that for the life of me I can't figure out why any VC would throw more good money after bad. At some point it is time to pull the plug -- and if it were my money, I would think that time was now. Originations are running a bit over a paltry $1M a month -- about one sixth of what they were, and about one twentieth of what they probably need to be just to break even. There's an enormous amount of bad will, and tens of thousands of lenders with bad to horrific experiences. And a class action lawsuit pending that has the potential of giving anywhere from several million to tens of millions of dollars to lenders. ...
You clearly see the negatives, however...
Starting companies is really hard. VCs routinely work with startups that have all manner of difficult problems. Things go wrong. People flake out. Ideas don't work. The world changes making the ideas irrelevant. People overspend and use up the money. The management who had the great idea turns out not to be the management you need to run the business. If you'll pardon the common expression: Shit happens. It is extremely rare to go from idea to success in a straight line. VCs are used to this.
Most startups don't have a compelling idea. Maybe it sounded compelling, but it ended up not so. The idea behind Prosper had the rare quality that it was able to draw 800,000 people to sign up. And over 20,000 of those people put in money. Almost nothing generates that much excitement.
It is this evidence of that rare quality in the idea that will keep VCs interested.
Of course the problems you cite are very bad problems, and you missed a couple...
1. Now's a really bad time to get money from VCs.
2. The competition has become real. The first-mover-advantage has been lost.
