Analysis

Prosper layoffs, Prosper Healthcare relocation and properties divesting 

When our article was written on May 1st it relied only upon an unconfirmed anonymous source.

While Prosper did not return our initial calls, Prosper has now provided an official statement,received from Prosper on May 13th, which you can be seen below :

“It’s very difficult to say goodbye to our colleagues, and we’re grateful for their many contributions. Over the past year we invested for growth, but with the recent tightening of the capital markets we are refocusing on our core consumer loans business and building more resiliency into the company. This includes our key asset Prosper Daily. The Prosper loan portfolio continues to perform and meet investor expectations, and as we move forward, our priority remains on underwriting and servicing a high-quality loan product. We’re making these changes now from a position of strength to ensure we continue on our path to long-term success.

 I can also confirm that 170 people total were impacted, the majority of which were in our Salt Lake City office, which we are closing. We are consolidating the remaining operations of Prosper Healthcare Lending to San Francisco. There is no impact to our core business functions, including our compliance, verification, fraud and risk management teams.”

It is now clear that Prosper is not shutting down Prosper Healthcare. It has downsized and relocated it instead.
Our original article published May 1st:

 

An unconfirmed single source has informed us that within days Prosper is shutting down Prosper Healthcare. It appears that over 100 people will be laid off in the process. In addition, it appears that Prosper Marketplace is trying to liquidate or sublet all the properties they purchased or rented last year for growth.

Lending Times reached out to Prosper Marketplace 48h ago for comment. Prosper Marketplace did not return our messages so far.

While this rumor is unconfirmed it has to be looked at through the prism of the latest information publicly available on Prosper Marketplace.

On March 28th, we announced that the yield on a $278 million securitization of Prosper loans which was done by Citigroup Inc. and priced on Thursday, March 24th, was as high as 12.5% for a portion of loans, according to PeerIQ, an online lending data tracker. That was more than 5 percentage points higher than the top 7.3% yield for a prior offering of Prosper loans by Citigroup late 2015.

This securitization felt like a canary in a coal mine and led to a seizing of the marketplace lending asset-backed securitization for unsecured personal loans. This seizing is mostly due to concerns that an increase in the default rates of both Prosper and Lending Club loans could be an early sign of a long trend due to a self-selection bias of online borrowers. This increase in defaults was confirmed by Lending Club in their K8 filing with the SEC on April 21st. This securitization concern was exacerbated by a lack of diversity in capital sources forcing loan buyers to sell no matter if the market was ready or not.

On the other side , Monja has argued that Moody’s seems to have made a mistake in Prosper’s overpriced securitization.

In all cases, Prosper’s marketing of loan offers sent by mail fell by 19%, from 41.4 million to 33.6 million, between December and February 2016, according to Mintel. It has been widely believed that physical mailing of loan offers has been by far the best customer acquisition channel of Lending Club and Prosper. We are only left to speculate why this reduction in the marketing budget of their supposed best channel.

Industry leaders and visionaries have since spoken out explaining that it is just a speed bump and in times of uncertainty, managed growth is rewarded more than hyper growth. It is of course expected that solid business models can survive shocks. On the other side, the question arises : “What happens when the cash runs out ?”.  And it turns out that executives of well-funded platforms believe that “cash and equity are precious in this environment so acquisitions don’t make sense.  Even at a zero valuation, [they] said [they]’d be reluctant to take on the challenges of integrating a new team/tech into the mix right now.” Banks could be interested in acquisitions but with a list of conditions that makes it extremely unlikely. A high level executive at a top-20 bank said “he will be willing to consider buying a company if the acquisition were immediately accretive, all competitive banks could be kicked off the platform with no collateral damage, their regulators signed off on the deal, and the tech could easily be unleashed on their core franchise without significant integration.”

Then on Monday, April 25th rumors of Goldman possibly targeting Prosper for a buyout have appeared.

These rumors could be driven by an aggressive acquirer or a motivated seller seeking new resources in times of difficulty.

In this case, they could very likely be driven by Goldman’s interest in building their own marketplace lending. Given Goldman’s timelines, resource, and size-needs in order to be meaningful to the group, purchasing existing large scale originators would be a natural step. These expectations were fully confirmed this same week when Goldman announced the acquisition of the $16 billion in online deposits of GE’s Capital Bank and their expectation of using these deposits for their own marketplace lender labeled Mosaic.

Therefore, given this background and history of news, what can we read in this unconfirmed rumor?

As usual, it is probably a diversity of things. Prosper is certainly hurting for cash. And in that context, it is actually a healthy action to reduce costs and cut the least profitable arms in order to ensure the survival of the core business.

On the other side in the context of a possible acquisition by Goldman, it is not unusual, due to regulatory reasons, for potential acquirers to ask the target to part ways with assets that would be a bigger liability than an asset.

On the 3rd side, some people may be tempted to believe that Prosper is closing their healthcare lending division purely because it is not profitable while the company is still flourishing. While it is still unconfirmed, Prosper is also parting ways with properties they purchased or rented last year for growth. This leads us to believe that a larger plan is at stake here.

Prosper has been heavily relying on securitizations for their lending capital while Lending Club has not done a single securitization to date. We look forward to Lending Club’s May 9th earnings call which will possibly give us more insights in the market fundamentals while understanding that the companies are affected differently by the seizing of the asset-backed securitization market in unsecured marketplace personal loans.

 

Author: George Popescu

George Popescu

 

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

18 Comments

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  • 1. Industry leaders and “visionaries” are snake oil salemen
    2. Goldman will never buy Propser. There is nothing to buy.
    3. Prosper executives cashed out in the last round.
    4. Investors were stupid to let them.
    5. Prosper sucks at credit.

    Game Over

  • Can’t see why Goldman considers purchasing the cow when the option to just purchase the milk (maybe all the milk) still exist; without any blue sky or loan origination expense.

  • @ Bobby : Goldman can not build a business without controlling the key parts. While Goldman may have an advantage in the present market state because capital is scarce and they have capital, the market will turn eventually. When the market turns capacity agreements may not be enough. Goldman may also want to lock out of the market other banks which will eventually just copy what Goldman is doing if it is working well.

    • Prosper is completely irrelevant to GS unless they can earn fees selling the loans citibank wouldn’t touch.

  • It’s unfortunate that most Prosper Healthcare employees learned about the layoff from this article and not company leadership.

    Shame.

    • It is not inaccurate. Leadership confirmed to workers after this article was posted. Management in SLC was not notified. Essentially no one knows what they are doing in SF when it comes to the healthcare lending arm of the company.

      • I agree completely. The sad part about it is, they don’t seem to care to learn how to run the healthcare arm of the company. They never cared about the HC Arm of the company. PHL was a tiny tiny piece of the business, and was always last priority. If they would have listened to management and the team in SLC and not tried to manage from 2000 miles away, things may have been different. Give us a product that works, and we would have originated.

  • George,

    Can confirm—the entire Utah office was sent home today and told to come back tomorrow for a Townhall. Rumor on the street is that Itzik Cohen (based in SF HQ, but who oversees PHL, will also be let go.)

    Also, Shaun Sorensen (founder of American Healthcare Lending and managing director of PHL) was let go a few weeks ago. Writing has been on the wall for some time—bad management, over-hiring, dominant Mormon culture, plethora of child-like “perks” mean to keep people around, etc.

    • What does “Dominant Mormon Culture” have to do with anything?… That’s no different than saying “Dominant Homo Sexual Culture” for the SF office, it’s COMPLETE irrelevant. What an Ignorant thing to say. The writing has been on the wall for some time. Prosper (Aaron, Itzik, and the rest of the C levels) don’t have any idea of how to run a SALES ORGANIZATION. You can’t expect to succeed when your’e selling and servicing a horrible product that hasn’t worked from the start, and NO backing from the team that was suppose to make it work. You can’t make a sale organization run with a product and service that doesn’t fit the needs of the market. Besides, the shut down has most to do with Prosper’s inability to see that having 1 huge investor rather than having a ton of small investors was a bad mistake.

      • Dominant Mormon Culture is a major reason why PHL in SLC was a mess. Sleazy sales guys running amuck under the pretense that they were honest, forthright dudes. It’s a known fact that Utah is a breeding ground for that sort of behavior, which is in part why Utah has a first-of-its-kind white collar crime registry list.

        cesletter.com

  • Anonymous, please don’t lump one bad apple and call the bushel rotten. It’s like saying “All Indians walk in single file, at least the one I saw did”. In any Salesforce you will find a less than honorable Salesperson…but the Sales Group at Prosper was made up of good people. I don’t know where you are getting your assumptions, but unless you’ve worked at Prosper and walked a mile in their shoes, please keep your platitudinal opinions to yourself. Would you care to elaborate on some of these “child-like perks”? What perks do you think they had? Just one question, do you work for Fox News? Because it’s a well known fact that people who work for Fox News run amuck with opinion pieces and call it ” Fair and Balanced News”.

  • Oh, one more thing. PHL is NOT shutting down. It is being relocated to San Fransisco, there is still a small crew at the Utah location.
    Just FYI.

  • PHL consistently broken origination records every month. PHL did what it was supposed to do, they also had the highest NPS Scores in the industry. PHL had no control over how Prosper HQ dealt with the backend financing. It’s utterly lazy to blame everything on a “culture” or “childlike” perks. But give credit where it’s due….George Popescu landed a scoop and was absolutely correct. Yesterday was a very sad, strange and surreal day for the employees of PHL. One day you’re blowing away origination goals, breaking revenue records every month and the next you are told that funding dried up and you’ve drawn the short straw. From what I’ve heard, Prosper did offer a decent severance package. Gotta find some way to see the glass half full, right?

  • Lending Times also received the following comment from an anonymous source “The three top execs blocked other employees and did sell stock in last round. They kept this extremely quiet. CRO left (wasn’t fired) because he was pissed off at being blocked and then saw his equity value get crunched by subsequent developments. Rumor, citing Prosper employees, is that shortly after they sold the CEO showed up in a brand new Ferrari. What class and empathy! Bottom line is they are in serious trouble. Many newly disgruntled employees, investors, a junior guy taking the CRO position during a time of rising delinquencies……and burning cash. How does that work out?? “

  • It’s definitely not good. Have no idea where the Ferrari comment comes from…confirmed by whom?
    Looks like Lending Club and Prosper, the heavyweights in the industry are heading into a downward spiral. It’s a shame, can’t comment on LC, but I know Prosper has been a good company to work for.

  • Sorry George, missed that the Ferrari comment had been confirmed by Prosper Employees. The whole thing is just sad.

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