More Related Content Similar to Brian Zwerner's Kensington Blake Capital entity begins investing with Prosper (20) More from Brian Zwerner (10) Brian Zwerner's Kensington Blake Capital entity begins investing with Prosper2. Overview and Update
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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First US peer-to-peer lending platform; launched in 2006
Pioneered the development of this asset class
Prosper Marketplace, Inc. is backed by top investors including Sequoia Capital, Accel Partners and Benchmark Capital
Prosper Marketplace, Inc. management team brings experience from Wells Fargo, Merlin Securities, Bear Stearns, Barclaycard US, BivioNetworks and CNET Networks
Prosper Marketplace, Inc. has 85employees with a broad range of experience and complimentary skill sets
Figures shown above are dollar weighted. 3. What is peer-to-peer lending?
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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High credit costs
Lack of available credit
Hidden fees
High cost base
(branches, ATM, etc.)
Competitive rates
Access to credit
Transparent terms
Low cost base
Traditional Bank Financing
Peer-to-Peer Lending 4. CURRENTMARKET SIZE*
$2.8 TRILLION
ADDRESSABLEMARKET**
$850 BILLION
Peer-to-peer lending
Currently ~$3.3 billion out of $850 billion
The Investment Opportunity: Disrupting consumer credit
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Consumer credit has been a large, consistently profitable asset classEquivalent to sixth-largest GDP in world
* Consists of consumer credit card debt and installment loansand does not include loans secured by real estate.
** Consists of revolving consumer debt outstanding
Source: Federal Reserve
Well-established market. Consumer credit data starts in Q4 1945
Current market size excludes home related debt
Small loan size. Credit card average balance is $7,300
Primary demographic user of consumer credit is 30-44 years old 5. Solving the central problems PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Investors face a difficult environment
Likelihood of suppressed future economic growth
Portends low returns and high volatility for most asset classes
Fixed income offers little yield and a lot of duration risk
Cash has a negative return
Borrowers face a difficult environment
Uncooperative lending institutions
Limited access to capital
Desire to improve balance sheet and pay down debt is restricted by these two factors 6. Unsecured consumer interest rates remain high PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Durable interest rate levels throughout economic cycles
Small loan size and lack of collateral cause above market interest rates
Source: Federal Reserve, Prosper 7. The history of consumer credit
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Positive lending spread in 26 of 26 years throughout volatile economic and interest rate cycles
Banks keep majority of consumer credit loans on balance sheets due to steady profitability
Little previous access for investors. Only low yield ABS and private transactions surrounding distressed assets
Avg. credit card interest rate -credit card charge-off rate = est. lending spread on consumer credit (1985 to 2013)
* Federal Reserve data 8. How peer-to-peer lending works
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Loan Request
Principal & Interest
Principal & Interest
Loan Criteria
Value Exchange between Borrowers and Lenders
Loan Funding
Loan Originates 9. Attracting creditworthy borrowers
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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AVERAGE CREDIT SCORE
703
AVERAGE INCOME
$74,238
As reported by borrowers
The Prosper marketplaceHighly creditworthy borrowers
Source: Prosper, dollar weighted originations, 6months ending January 31, 2014
•Lower fixed rates
•Fully amortizing loans
•No hidden or tricky fees
BORROWER CREDIT PROFILE
LOAN PURPOSE
BORROWERS GET
4 13. Risk management process
Risk process is rigorous, efficient and thorough
Targeting and credit policy determine who is approved and at what expected loss rate
Underwriting process verifies borrower information
Tracking and analysis of performance establishes feedback loop to improve quality of models
Continuously looking for arbitrage pockets and eliminating them
Inbound Inquiry
Data Collection
Credit Scoring
Servicing
Verification
Direct-to-site
Affiliates/partners
Direct mail
Borrower data
Bureau pull
Proprietary scorecard
Additional adjustments
Rating assigned
Verify identity
Verify address
Fraud screen
Verify bank account
Verify employmenton majority of loans
Lender statements
Payment processing
Customer relations
Collections
1-15 dpd: Internal
16+ dpd: External
120 day charge-off policy
Post c/o: External
Originate Loans
Identify Segment Variances and Drivers
Measure Performance
vs. Expectations
Adjust Policy, Product, Pricing
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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14. Expected Return by Prosper Rating
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Expected Returns by Prosper Rating for seasoned loans (“Seasoned Returns”)3
Source: Prosper, as of September 30, 2013 15. Consistent lender returns
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Source: Prosper, September 30, 2013
4 16. Hypothetical portfolio example*
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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* This hypothetical example is not intended to be indicative of any specific investment. The hypothetical example is included for illustrative purposes only and is not intended to represent the past or future performance of any specific investment.
Allocation
Lender Yield5
Estimated Loss2
Estimated Return2
3 year -65%
AA
5%
6.72%
1.59%
5.00%
A
5%
10.48%
3.26%
6.83%
B
15%
14.47%
5.23%
8.47%
C
15%
18.49%
7.58%
9.65%
D
10%
22.82%
10.50%
10.45%
E
10%
26.70%
13.14%
11.19%
HR
5%
30.33%
15.74%
11.85%
5 Year -35%
AA
5%
7.32%
1.79%
5.37%
A
5%
10.81%
3.32%
7.09%
B
10%
15.15%
5.11%
9.25%
C
5%
19.74%
7.38%
11.03%
D
5%
24.27%
10.36%
11.93%
E
5%
28.46%
13.50%
12.42%
TOTALS
18.32%
7.64%
9.38%
Source: Prosper, September 30, 2013 17. Lower overall portfolio risk, greater current income
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Prosper’s monthly returns show low correlation to other asset classes*
Low standard deviation of returns helps reduce overall portfolio volatility
High current income increases overall portfolio income
Source: Prosper
Source: Bloomberg, Prosper / August 2009 through latest data points available as of September 30, 2013
* Any comparison of Prosper Notes with other fixed-income products as potential investments should include consideration of numerous additional factors beyond duration and yield, including but not limited to government-backing, balance sheet strength, credit insurance and overcollateralization. 18. Balancing volatility and returns
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Higher rated loans greatly enhance overall portfolio stability
The right mix across rating grades will vary depending on an investor’s risk-tolerance
* Prosper return expectations calculated using 100 loan portfolios by credit grade overlaying simulation of economic downturns to projected estimated returns.
** Risk free asset assumed to have a constant 1.20% return (5 year Treasury yield as of May 30, 2013). 19. Working closely with regulators
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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Investing Activities Regulated by the SEC
Notes are issued pursuant to a registered public offering governed by a Form S-1; Notes have been registered since July 2009
Prosper Marketplace, Inc. and Prosper Funding LLC are public filing companies (file 10-Ks, 10-Qs, etc.). Prosper Marketplace, Inc. has 5 years of audited financials and Prosper Funding LLC, which was formed in 2012, has 1 year of audited financials
State-by-state Blue Sky registration also required: Notes are registered in 30 states, plus DC
Borrower Activities are Subject to Consumer Lending Laws
Prosper is subject to Federal and state consumer lending laws and other laws applicable to financial institutions (privacy, anti-money laundering, etc.)
Partnership with WebBank exempts Prosper Loans from state-by-state interest rate and fee caps
Prosper has a Deep Regulatory Expertise
Developed through years of careful analysis and extensive interaction with Federal and State Regulators
Prosper Marketplace, Inc. has an experienced in-house legal team with expertise in securities and consumer finance, and has developed a sophisticated compliance management system
Advised over a number of years by premier outside counsel with strong regulatory relationships (DC offices of Covington & Burling and Skadden Arps) 20. Prosper Marketplace, Inc. Contact Information
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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RonSuber
Head of GlobalInstitutional Sales
T: (415) 593-5478
rsuber@prosper.com
John Higgins
Director, Institutional Relations
M: (203) 809-4420
JHiggins@prosper.com
Eric Thaller
Head of Institutional Relationships
T: (415) 593-5588
ethaller@prosper.com
Institutional Relations 21. Disclosures
IMPORTANT DISCLOSURES
Borrower Payment Dependent Notes (the “Notes”) are offered pursuant to the Prospectus, which accompanies this presentation and which is also available at www.prosper.com/prospectus. Persons considering investing in Notes should review the Prospectus in its entirety.
This presentation includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management and is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. You should carefully read the factors described in the “Risk Factors” section of the Prospectus for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.
All forward-looking statements speak only as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements above and in the Prospectus. We undertake no obligation to update or revise forward-looking statements that may be made in this presentation to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.
Neither Prosper Funding LLC nor Prosper Marketplace, Inc. are registered as an investment adviser with any federal or state regulatory agency. The information contained in this presentation is for informational purposes, and should not be construed as individually tailored investment advice or asa recommendation with respect to any security or investment approach. This presentation has been prepared without regard to the circumstances and objectives of its participants and should not be relied upon as authoritative or taken in substitution for the exercise of judgment by any individual. Each individual should consider the appropriatenessofany investment decision having regard to his or her own circumstances, the full range of information available and appropriate professional advice. Prosper Funding LLC and Prosper Marketplace, Inc. recommend that each individual seek independent investment and financial advice concerning any services or investments discussed in this presentation.
1Borrower credit scores are Experian FICO08, except that borrower credit scores for all listings begun prior to September 6, 2013 are Experian ScorexPlus.
2Estimated return is the difference between the estimated effective yield and the estimated loss rate. Estimated effective yieldis equal to the current yield (borrower interest rate minus the 1% servicing fee) (i) minus estimated uncollected interest on charge-offs, (ii) plus estimated collected late fees. The estimatedloss rate is the estimated principal loss on chargedoff loans. All estimates are based on the historical performance of Prosper loans for borrowers with similar characteristics. The calculations of estimated return, estimated effective yield, and estimated loss rate require significant assumptions about the repayment of loans, and lenders should make their own judgments with respect to the accuracy of these assumptions. Actual performance may differ from estimated performance.
3Seasoned Return calculations represent historical performance data for the Borrower Payment Dependent Notes ("Notes") issued and sold by Prosper Funding and Prosper Marketplace, Inc. since July 15, 2009. To be included in the calculations, Notes must be associated with a borrower loan originated more than10 months ago; this calculation uses loans originated through November 30, 2012. Our research shows that Note returns historically have shown increased stability after they've reached ten months of age. For that reason, we provide "Seasoned Returns", defined as the Return for Notes aged 10 months or more.
To calculate the Return, all payments received on borrower loans, net of principal repayment, credit losses, and servicing costsfor such loans, are aggregated and then divided by the average daily amount of aggregate outstanding principal. To annualize this cumulative return, it is divided by the dollar-weighted average age of the loans in days and then multiplied by 365.
All calculations were made as of September 30, 2013. Seasoned Return is not necessarily indicative of the future performance on any Notes.
4 To calculate the lender return by month of origin, all payments received on borrower loans originated during that month (i) minus principal payments (ii) minus servicing fees (iii) minus charge-off’sare aggregated and then divided by the average outstanding principal balance. To annualize this return, it is divided by the dollar-weighted average age of the loans in months and then multiplied by 12. Seasoned vintages are categorized as those vintages that are at least 10 months old.
5 Lender yield equals borrower interest rate minus Prosper servicing fee.
PROPRIETARY & CONFIDENTIAL . PROSPER FUNDING LLC . © 2013
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