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[veritas]

Ok this is what I think, if I'm way off, so be it:
Right now LC is burning cash like there is no tomorrow (1 million/month). There is no profit in sight, so the only thing they have of value is assets. Until profitability is within sight, their valuation will be based on their assets.

So let me put my prediction in. In one year I bet that LC's valuation will be about 1.1 times the amount of outstanding loans+cash (which should be around $450 million, depending on growth of course, so their valuation should be around $500 million).

Been lurking around for awhile, but there was an article on this board saying LC was making a mil a month in revenue. Now that doesn't mean they're at a profit, but I don't think they're a giant monthly money eating pothole either.

[havastat]

Nominate for lobby.

[jkeller4000]

wait,  so they get 1% of the loan payment,
 200 million in loans,  at average 8%

16 million a year interest, plus money paid back,
lets say average loan time is 4 year,   so 50 million a year principal paid back,
66 million total paid back a year, 
.6 million a year,  ohh i really thought they made more money this way, lol i guess thats a good thing i did the math,
so if they kept the lender return at 8% and average loan time at 4 years,  to make 12 million a year they would need, 4 billion in loans, that would be 1  billion in new loans a year about 90 million in new loans a month  hm i guess i am glade they charge a loan origination fee it probably helps keep them floating,

[havastat]

Here's the report on the round filed with the SEC:

http://www.sec.gov/Archives/edgar/data/1409970/000095012311072076/c20718e8vk.htm

[havastat]

Nominate for lobby

[buffetrand]

2nd

[SLN]

wait,  so they get 1% of the loan payment,
 200 million in loans,  at average 8%

16 million a year interest, plus money paid back,
lets say average loan time is 4 year,   so 50 million a year principal paid back,
66 million total paid back a year, 
.6 million a year,  ohh i really thought they made more money this way, lol i guess thats a good thing i did the math,
so if they kept the lender return at 8% and average loan time at 4 years,  to make 12 million a year they would need, 4 billion in loans, that would be 1  billion in new loans a year about 90 million in new loans a month  hm i guess i am glade they charge a loan origination fee it probably helps keep them floating,

The loan origination fee income dwarfs income from investors. This has been one of the complaints of many people on this forum, that both Prosper and Lending Club's interests are more aligned with borrowers than investors. My guess is that it is roughly a 10:1 ratio of borrower income versus investor income.

[kenL]

Ok this is what I think, if I'm way off, so be it:
Right now LC is burning cash like there is no tomorrow (1 million/month). There is no profit in sight, so the only thing they have of value is assets. Until profitability is within sight, their valuation will be based on their assets.

So let me put my prediction in. In one year I bet that LC's valuation will be about 1.1 times the amount of outstanding loans+cash (which should be around $450 million, depending on growth of course, so their valuation should be around $500 million).

Been lurking around for awhile, but there was an article on this board saying LC was making a mil a month in revenue. Now that doesn't mean they're at a profit, but I don't think they're a giant monthly money eating pothole either.

I just want to clarify my viewpoint. I do not think that LC will be profitable for a long time, but they also have the funds to last for a long time. At current cash burn rate they have funds to last for 3 years. This is reassuring to any investor. Also, at the current moment lenders are earning more interest than the cash burn rate which means LC is creating a positive net value.

Now I have realized that the valuation is probably based on the net value that LC is creating and of course their potential (which is great). If their current cash runs out in 3 years the interest earned by investors 3 years from now probably will be many times larger than the cash burn rate (if in fact they are still burning cash). Considering that they have three years to work on improving their balance sheet and that even today they are creating a net positive value, LC's long term viability looks great.

[SLN]

I just want to clarify my viewpoint. I do not think that LC will be profitable for a long time, but they also have the funds to last for a long time. At current cash burn rate they have funds to last for 3 years. This is reassuring to any investor. Also, at the current moment lenders are earning more interest than the cash burn rate which means LC is creating a positive net value.

Now I have realized that the valuation is probably based on the net value that LC is creating and of course their potential (which is great). If their current cash runs out in 3 years the interest earned by investors 3 years from now probably will be many times larger than the cash burn rate (if in fact they are still burning cash). Considering that they have three years to work on improving their balance sheet and that even today they are creating a net positive value, LC's long term viability looks great.

Ken, I think in three years time Lending Club will be doing around $100 million a month in new loans and be well and truly cash flow positive. They may well get another round of cash at some point but if they do I think that will be aimed at an acquisition or to position themselves for an IPO (or both) not because they need it for operations.

[kenL]

Ken, I think in three years time Lending Club will be doing around $100 million a month in new loans and be well and truly cash flow positive. They may well get another round of cash at some point but if they do I think that will be aimed at an acquisition or to position themselves for an IPO (or both) not because they need it for operations.

Wow, a hundred million... that is hard to imagine. I've been impressed by their growth in the last couple of years and if they keep growing at that pace I guess $100 million/month is possible 3 years from now.

[SLN]

Ken, I think in three years time Lending Club will be doing around $100 million a month in new loans and be well and truly cash flow positive. They may well get another round of cash at some point but if they do I think that will be aimed at an acquisition or to position themselves for an IPO (or both) not because they need it for operations.

Wow, a hundred million... that is hard to imagine. I've been impressed by their growth in the last couple of years and if they keep growing at that pace I guess $100 million/month is possible 3 years from now.

If they can manage just a 4.5% average monthly growth rate for the next 36 months they will easily get to $100 million. By the way that is well below their 6% average monthly growth rate of the last 18 months. Seems doable to me.

[mothandrust]

The outstanding loans are assets of LendingClub aren't they? And lenders are unsecured creditors aren't they?

Is the idle cash of lenders an unsecured obligation of Lending Club as well?

[SLN]

The outstanding loans are assets of LendingClub aren't they? And lenders are unsecured creditors aren't they?

Is the idle cash of lenders an unsecured obligation of Lending Club as well?

There was a blog post today on a financial advisor blog that dealt with these very questions. Here is the link as well as the pertinent information:
http://www.goodfinancialcents.com/investing-lending-club-too-risky-or-is-it/

7. The question of all questions, if Lending Club were to go under how would an investor go about getting their money back?

Lending Club has an excellent cash position (more than $35MM) and the backing of deep-pocketed investors. In the unlikely event that we were to go out of business, outstanding loans would not be affected. Investors would still continue to own their Notes and receive their payments. Any cash balance in investors’ accounts is held in an FDIC-insured Trust Account at Wells Fargo and would be returned to investors.

In our absence the loans would be serviced by our back-up servicer Portfolio Financial Servicing Company (PFSC), one of the main backup servicers in the country with over $9 billion under servicing. The Notes are debt obligations by Lending Club to investors, while the loans are assets of Lending Club for an identical value. The servicing proceeds from the loans – which would be collected by PFSC – would be used to pay the Notes held by investors. It is important to note that Lending Club has no other material unsecured obligations that compete with investors Notes, and the sheer size of the platform provides protection to investors: even if other corporate obligations were to come up and add up to a few million, the $250M+ of notes would still capture 98 percent+ of the proceeds. We do have secured obligations, but those are over-collateralized and will not compete against the Notes held by Lending Club investors.

[havastat]

I agree Lending Club is hardly about to go under at the moment. Things aren't tight, and Lending Club is showing no signs of dipping into the loan repayment stream to pay other creditors. But by by reserving legal a right to dip in if things get tight in the future, they're more risk to investors in notes than if we worked under a legal structure that prohibited Lending Club from doing this.

Risk is all about pricing, How much risk premium is the chance Lending Club or a bankruptcy judge will dip into the loans if Lending Club becomes insolvent worth?

Most corporations are in no danger of going other these days, but AAA corporate bonds command a premium over bank deposits and CDs. The reason is bank deposits are guaranteed, corporate bonds aren't. Even for a very safe corporation, the slight risk that something will happen means it has to pay higher interest than no risk. The extra interest is a premium paid for the extra risk.

[SLN]

Risk is all about pricing, How much risk premium is the chance Lending Club or a bankruptcy judge will dip into the loans if Lending Club becomes insolvent worth?

I think this is the key question that investors have to ask themselves. Assuming you have read the prospectus and you really understand the risks what return do you need to justify those risks? In my case, I want to be earning at least 10% at Lending Club and 15% at Prosper. But every investor will have a different answer to that question and unfortunately I think most will not even think seriously about the risk end of the equation.