Lending Club, a startup worth over $US6.5 billion, is one of the biggest online lending marketplaces in the world. Its IPO last year was the largest among all US tech companies.
But founder and CEO Renaud Laplanche isn’t the type of leader who likes to go around telling the world about his success.
He’s more reserved and humble, merely calling his accomplishment, “A big honour for sure…but outside of that particular [IPO] week, it’s really business as usual.”
But one thing Laplanche doesn’t mind talking about is the challenges his company, founded in 2007, had to overcome to get to where it is today. In 2008, for example, it had to cease operations for 6 months — right in the thick of the financial crisis — because of an SEC registration process.
“It was a pretty stressful and uncertain time,” Lending Club CEO Renaud Laplanche told Business Insider.
Back in 2008, Lending Club was a scrappy startup with a disruptive idea. Its online software significantly dropped the cost of vetting and matching borrowers with potential lenders, creating an alternative to physical banks who typically charged a lot more to facilitate loans.
But it didn’t catch on right away. The idea of lending money to strangers over the internet was too risky at the time, especially when Lending Club didn’t have a track record just yet.
And, Lending Club needed an SEC registration for the loans it was facilitating. Laplanche’s company operates a bit differently that most online lending marketplaces: its model allows it to split up loans in pieces as small as $US25, so investors could spread their risk across multiple borrowers.
The problem was that the SEC didn’t have a registration framework for these kinds of loans and required Lending Club to register it as a new type of security.
“There was no precedent for the type of registration we were trying to get,” Laplanche said.
So, about a year following its launch, Lending Club had to suspend all new lender signups, essentially stalling its growth for six months – without knowing if it would ever get SEC approval. It was still allowed to run its lending market, but there was no new capital flowing in.
Worse, Lending Club was running out of money. And the economy was heading to the bottom, with large financial firms like Lehman Brothers going out of business.
“There were headlines in the newspaper of people defaulting almost every day,” Laplanche recalls.
Things couldn’t get more bleak at that point. But Laplanche didn’t lose his composure and still believed that he’d eventually turn things around.
“I was confident that we’d get it done, but there was a lot of uncertainty around us,” he said.
Luckily, Lending Club’s early investors, Norwest Venture Partners and Canaan Partners, saw Laplanche’s confidence and remained as strong supporters. Even with all the uncertainty, they ended up doing a Series A follow-on round under the same terms as the Series A round.
“Who would invest in a company that was stuck in limbo negotiating for its life with the government while the rest of the country was in an economic crisis?” Jeff Crowe, Managing Partner at Norwest, wrote on LinkedIn. “But we still thought that marketplace lending was a hugely important idea, and we continued to believe in Renaud.”
Finally, in October 2008, Lending Club gained approval from the SEC and returned to normal operations. From there, things started moving fast: within a few months, it received its first $US50,000 unsolicited check by mail, and a couple of years later, it saw the first $US5 million institutional investment made on its platform.
From 2012, Lending Club has been on a true hockey-stick growth, facilitating more than $US9 billion in total loans so far. And in December 2014, Lending Club had its historic IPO, raising almost $US900 million.
Looking back, the 6-month freezing period couldn’t have happened at a better time for Lending Club, says Laplanche. Right when it got the SEC approval in late 2008 and started to really accelerate its growth in early 2009, large banks were starting to pull back, making credit unavailable because of the financial crisis.
“In hindsight, it was good timing,” Laplanche said.
And Laplanche believes things are only going to get better.
“Nobody ever looked at banking as an engineering problem,” he said. “We believe we can set up a marketplace where the banks become participants, and that process has already started.”