DealBook: Lending Web Site Gains a Shareholder in Google

Peter DaSilva for The New York TimesRenaud Laplanche of Lending Club said the company wanted to reshape the financial system.

A fast-growing marketplace for peer-to-peer loans, Lending Club, has attracted a prominent investor: Google.

Lending Club plans to announce on Thursday that Google led a $125 million deal to buy a stake in the company from existing investors. Foundation Capital, a current shareholder, also participated in the transaction. The latest investment values Lending Club at $1.55 billion, nearly triple the valuation of the last fund-raising round that closed last summer.

Google has made a number of investments in start-ups both directly and through its venture capital arm, but it has not dabbled much in the banking industry. Google Wallet, a mobile payments system, may be its most prominent financial offering to date.

The technology company will own a stake of less than 7 percent in Lending Club. And the senior Google executive who led the talks over the investment, David Lawee, vice president for corporate development, will sit as an observer on the start-up’s board.

“We’re really excited about partnering with Google,” Renaud Laplanche, Lending Club’s chief executive, said in a telephone interview. “We’re trying to be the good guys of finance and banking, and Google has a reputation of being the good guys of technology.”

Google’s arrival signals another significant partner for Lending Club, ahead of a potential initial public offering that could come as soon as next year.

The company essentially connects investors with people seeking money after screening the credit histories of potential borrowers. The average FICO credit score of a Lending Club borrower is about 706, while the average loan is about $13,076.

Lending Club claims that its operations provide a lower cost for personal loans, with an average annual percentage rate of about 6.78 percent, below a national average of 9.06 percent. And it estimates that most of its investors have made a profit from the loans.

Lending Club, a six-year-old start-up, has emerged as one of the biggest members of the peer-to-peer lending industry. It originated about $780 million in loans last year, and Mr. Laplanche estimated that it was on pace to issue $2 billion this year.

Among its backers are venture capital heavyweights like Kleiner Perkins Caufield Byers, Norwest Venture Partners and Union Square Ventures. Its directors include John J. Mack, the former chairman of Morgan Stanley, Lawrence H. Summers, the former Treasury secretary, and Mary Meeker, the prominent Internet analyst turned venture capitalist.

Despite what Mr. Laplanche said was a steady stream of calls from hedge funds and private equity firms seeking to invest in the company, Lending Club was not looking to raise new equity for fear of diluting existing shareholders.

But Mr. Lawee of Google was initially eager to discuss ways to collaborate, tapping into Lending Club’s online loan market.

“When he reached out, his mind went immediately into all the cool stuff we can do together,” Mr. Laplanche said. “We didn’t talk about valuation or investment amount for many weeks. It was almost like two engineers meeting.”

As Mr. Lawee began making regular phone calls and treks to the company’s headquarters in San Francisco — about eight to 10 calls and meetings in all — Mr. Laplanche began to consider bringing Google on as a shareholder.

The companies eventually settled on a secondary transaction in which some existing investors would sell less than 20 percent of their holdings to Google and Foundation Capital, realizing investment gains while still staying involved with Lending Club.

At the heart of the discussions, Mr. Laplanche said, was a sense that the financial industry was due for a shake-up. Each company thinks that Lending Club could eventually replace some of the banks’ branch networks with a lower-cost alternative.

“Lending Club is using the Internet to reshape the financial system and profoundly transform the way people think of credit and investment,” Mr. Lawee said in a statement. “We are excited to be a part of it.”

A version of this article appeared in print on 05/02/2013, on page B3 of the NewYork edition with the headline: Lending Web Site Gains A Shareholder in Google.

Article source: http://dealbook.nytimes.com/2013/05/02/google-to-invest-in-lending-club/?partner=rss&emc=rss