Lending Club IPO Could Set Tone For All Alternative Lenders

Preparing for its IPO, peer-to-peer lending leader Lending Club said Monday (Dec. 1) that it would price its shares at $10-$12, which would value the company at about $4 billion. That move would also raise as much as $692.4 million. But The New York Times notes that the art of pricing this particular IPO could have implications far beyond Lending Club.

“Determining the best pricing for Lending Club’s I.P.O. has been tricky because the company will be in a league of its own when it begins trading on the New York Stock Exchange, under the ticker symbol LC. No other alternative lender trades on the public markets, meaning that Lending Club’s bankers will have to use otherwise unrelated comparisons like nonfinancial Internet start-ups as benchmarks for the company’s performance,” the story said. “Behind the rise of such lenders is the belief that traditional banks, hamstrung by tougher capital requirements and expensive infrastructures, have stopped providing certain kinds of loans, particularly to smaller borrowers. Lending Club’s business model revolves around using advanced computer algorithms to match those seeking money with those willing to provide it. Customers who have relatively high-quality credit, with FICO scores starting at about 660, can borrow up to $35,000 at interest rates averaging about 14 percent.”

The Times specifically pointed to Prosper Marketplace and SMB-focused OnDeck Capital as similar firms eyeing their own potential IPOs.

Pricing calculations—and the realistic impact on others in this space—are muddied by the fact that Lending Club has itself morphed. It’s lending practices and customers are not what they once were.

“The initial lenders on the service were individuals, but now a significant percentage are big mutual funds and hedge funds.And though the company began with personal loans, meant for borrowers looking to refinance credit card debt with high interest rates, it has moved into other offerings. Small businesses can now borrow up to $100,000 through the platform,” the story noted.

Lending Club’s current backers include board member (and former Treasury Secretary and Harvard CEO) Lawrence Summers, former Morgan Stanley CEO John J. Mack, VC Mary Meeker, along with Google, Kleiner Perkins Caufield & Byers, T. Rowe Price and BlackRock.