Prosper raises $50 million but loses unicorn status

BI Intelligence

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In another sign that the US marketplace lending industry has successfully turned itself around, one of its largest firms, Prosper, has raised $50 million in fresh funding.

The round was led by FinEX Asia, the asset management platform run by Chinese marketplace lending giant Dianrong, and brings Prosper's total equity raised to $410 million to date.

The new cash will be spent on the company's platform and products, likely in a bid to make them more attractive to the Chinese investors served by FinEX Asia.

Prosper's latest round is a win for the company, but comes at the expense of its unicorn status. While the investment indicates confidence in Prosper, and provides additional evidence that its attempts throughout 2016 to tighten up its business have been successful, it does come with a sting in the tail — a dramatically reduced valuation. In 2015, Prosper raised $165 million at a valuation of $1.9 billion, but its valuation for the latest round was just $550 million, according to LendAcademy. That will likely be disappointing for the firm, however, when taken in context with the recent valuations of its industry peers, it is not unexpected — publicly traded LendingClub's value has dropped by a similar amount over the same period, according to LendAcademy. This suggests Prosper's valuation has simply been adjusted to reflect changes in the broader market.

All in all, Prosper's raise is a good indicator of the state of the US marketplace lending industry. Initially, US marketplace lenders focused on originating as many loans as possible, often at the expense of compliance and profitability, and the outfall from that strategy has been covered extensively. In response, most firms have started to retrench, and focus on running more sustainable businesses. Prosper's ability to raise a significant sum, and in a round led by new investors, indicates that it has achieved this successfully. In turn, that will give other lenders confidence to continue pursuing new strategies, and highlights the trajectory of the industry as a whole — instead of seeing firms focus on ever greater origination volumes, we will continue to see them focus on sustainability and profitability. That will result in a more stable industry, which will only be a good thing for borrowers, investors, and lenders alike.

Most fintechs, even the unicorns, aren't profitable. Despite having innovative ideas and live products that are successfully disrupting the financial services industry, these fintechs' business models are increasingly proving to be fundamentally flawed.

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