Prosper, a pioneer in consumer lending, has held talks to sound out potential buyers

• San Francisco-based Prosper Marketplace, the first peer-to-peer lender in what later became an entirely new industry, has been exploring a sale, according to people familiar with the process.
• The lender has, over the last few months, contemplated a sale and reached out to at least one prospective buyer directly, one of the people said.
• Prosper and others, including larger competitor LendingClub, offer an installment loan online that many people use to pay down revolving debt.
• During its roughly 12 years in business, Prosper has been through three management teams.
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Prosper Marketplace, a pioneer of the peer-to-peer lending industry, has been exploring a sale, according to people familiar with the process.

The San Francisco-based lender has over the last few months contemplated a sale and reached out to at least one prospective buyer directly, one of the people said. Business Insider couldn't learn whether the company and CEO David Kimball had officially hired bankers or otherwise started a more formal process.

A Prosper spokesperson declined to comment.

A sale of Prosper, which was founded in 2005, would mark a seminal moment in the marketplace lending industry, which centers on the making of loans on the internet with money provided by individuals and, increasingly, other institutions. Companies like Prosper and LendingClub act as the middlemen between the two.

The industry sprang up during the financial crisis and gave millions of consumers an alternative to high-cost credit card debt. Prosper and others, including larger competitor LendingClub, offer an installment loan online that many people use to pay down revolving debt.

Prosper spawned a host of copycats, which have taken away some of the business enjoyed by the larger platforms. The company's growth has also been limited by the cost of acquiring customers and other operational challenges.

Losses and management turnover

The company struggled to turn a profit. In 2018, Prosper reported net losses of $39.9 million, an improvement from $115.2 million of losses in 2017, according to quarterly financials released by the company on its website. In the third quarter, Prosper reported net profits of $10.8 million.

During its roughly 12 years in business, Prosper has been through three management teams. After founder Chris Larsen left in 2012, the business was run by Stephan Vermut, and then his son Aaron, and Ron Suber. The trio came onboard in 2013 with backing from Silicon Valley heavyweight Sequoia. In 2015, that management team raised $165 million at a post-money valuation of $1.9 billion, according to Pitchbook.

Vermut stepped down in November 2016, handing off to CFO and former USAA Americas CFO Kimball.

According to media reports, it lost its unicorn status in 2017 when its valuation was slashed to $550 million in a $50 million fundraise led by FinEX Asia. Larger rival LendingClub has a market capitalization of about $1.2 billion.

In total, Prosper has raised $416 million over 16 fundraising rounds, according to Crunchbase. Venture firm Accel led the company's seed round in 2005, while Omidyar Network and Benchmark Capital were also big investors, according to CrunchBase.

Now some of Prosper's venture investors are getting antsy for an exit, according to one person familiar with the situation. A deal would also be complicated by the fact that debt holders would likely have a say in any change of control, meaning Prosper needs to get a lot of people to agree, according to a second person.

A tough time for the marketplace lending business

The marketplace lending industry suffered an existential crisis in 2016 as the institutions providing capital largely stepped away, and LendingClub became embroiled in a scandal that brought a regulatory investigation, a precipitous share price drop and the resignation of its CEO.

The valuations of the marketplace lenders never recovered.

Prosper soldiered on, lining up a consortium of investors in 2017, who committed $5 billion to lend on the platform in return for warrants and other protections.

In April this year, Prosper agreed to pay the SEC a $3 million fine to settle claims that it miscalculated returns of investor lending on the network. Prosper did not admit nor deny the findings.