ONLINE LENDING: $65 Million Venture for Lending Club CEO's "Upgrade".

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The world is full of second chances it seems. Renaud Laplanche is a rare entrepreneur, building Lending Club into a public company ($575mm in revenue, $1.6B market cap), and kickstarting the P2P lending industry. But he was also caught up in a governance scandal in 2016, which resulted in a resignation and questions around ethical conduct. Within two years, Laplanche has raised $142 million of venture funding for his new company, Upgrade, of which $62 million came in this week. The startup, which (similar to Lending Club) offers personal loans, already has over 100,000 customers and more than $1 billion in loan originations. This man knows how to build a digital lender!

Another persona that knows how to build a digital lender is Mike Cagney. Cagney was the founder and CEO of SoFi, the student lending giant known for its $1 billion investment round from SoftBank. But, he too was ousted from the seat in 2017, amidst allegations of sexual harassment and problems with an aggressive culture. Cagney's new startup is called Figure, which is a home-equity lender leveraging a blockchain infrastructure, funded to the tune of $50 million. It is a smart bet on just how unprepared people are to retire -- likely needing to extract value out of their homes, without selling them. 

What's going on here? Online lending is a mature theme, where even Goldman Sachs is originating personal loans to consumers. And didn't the IPOs of Lending Club and OnDeck fall 80% since the offering? Yet, from the Fintech Treasury report, we see that US originations are showing healthy growth, from less than $5 billion in 2013 to nearly $40 billion in 2017 across consumer, student and SME financing. That's a far cry from the $200 billion addressable market we identified in 2015. Software can be better at customer acquisition than the retail footprint, and it can also be better at underwriting the risk, using machine learning. Sure, we have not seen the other side of the credit cycle. But so far, digital lenders are one of the few categories in Fintech that have generated cashflows (e.g., Elevate Financial at $670mm) because they manufacture an asset class, which solves an accute pain point for the borrower. 

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Source: TechCrunch (UpgradeSoFi), Bloomberg (SoFi), FigureUpgradeTreasury Report